ROI
Also called: Return on Investment, return on investment
What is ROI?
Return on investment expresses the gain from an investment as a percentage of its cost. It is used for equipment, outlets, marketing campaigns and any decision where money is committed to produce a return.
Why ROI matters
ROI makes unlike options comparable — a new oven against a marketing push against paying down a loan. Without it, capital goes to whatever feels most urgent.
ROI formula
ROI % = (Gain from investment − Cost of investment) ÷ Cost of investment × 100
Annualise it before comparing investments of different durations.
How ROI works in practice
Be honest about the denominator: include installation, training and the working capital the investment locks up. For anything spanning years, pair ROI with a payback period.
Worked example
₹2,00,000 spent producing ₹2,60,000 of additional profit is a 30% ROI.
Frequently asked questions
Higher than your cost of capital and than the next best use of the same money, including simply repaying debt.