Return On Investment (ROI) Definition

Definition

Return on Investment (ROI) is a method used to determine if an investment is providing a gain or a loss to the investor. The result is normally expressed as a percentage.

Extended Definition

Return on Investment (ROI) is the result of a calculation comparing net operating income (revenue less cost of goods sold less operating expenses) to average operating assets (cash, accounts receivable, inventory, equipment and other resources the business uses to generate income) for a defined period of time. ROI is a management tool that measures how effectively a business uses resources to generate income. The higher the percentage rate, the better the investment.

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