What Is Return on Investment (ROI)

ROI, or Return on Investment, is a financial metric that assesses the profitability of an investment relative to its cost. It is calculated by dividing the net gain from the investment by the initial investment cost, expressed as a percentage.

ROI matters because it helps businesses gauge the effectiveness of their investments and make informed decisions. It provides clarity on which projects or strategies generate the highest returns, guiding resource allocation. By understanding ROI, businesses can optimize spending, enhance profitability, and ensure sustainable growth. It’s a crucial tool for assessing the success and viability of ventures, aiding in long-term financial planning and decision-making.