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What is ROI

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The financial world is filled with multiple confusing words, which without indepth understanding of some of these words it will be difficult to survive in a world that’s made up of many personality:bankers, investors, complexed corporate environment, buyer, sellers and so on.

ROI is one among the confusing word in world of finance. ROI is the acronym of Return On Investment. What then is Return on investment?

Return on investment is a measure of performance which is used to evaluate the efficiency of the investment of interest or to compare the efficiency of a number of different investment returns.

ROI is easy other calculate through the return on investment formula which gives a quantitative analysis of the amount of return of an investment in relation to it cost. the result is expressed in percentage or ratio.

Also Read;how to calculate your interest rate

Mathematically, the formula for return on investment is given as: ROI=(Current value of investment – cost of investment / cost of investment). From the formula above, current value of investment refers to the amount of money obtain from the sale of the investment interest while cost of investment is the amount of money used in starting the investment.

Base on the fact, that ROI is measured in percentage it can be easily used to compare return from other investments., allowing one to measure is investment interest(profits) in various type of investment against each other.

Practical example on Return On Investment :calculation on ROI is simple and versatile because it is a popular tool used by investors, it is relatively easy to interpret for its wide range of application an its calculation is not complicated. For example, if Fred invest $1500 in cadiff football club in 2016 and sold his stock share far a total of $3500 after two year. To calculate his return on investment, he would simply divide his profits i.e($3500-$1500) by the investment cost($1500) which after calculation gibes result of 66.67%.

Development of ROI

Recently, investors and businessman have taken interest to develop a new form of ROI metric called: Social Return On Investment (SROI). SROI was develop in the early 2000s with the help to bridge social and environmental metric not reflected in the current conventional financial accounts.

There are many ROI form that have been developed for particular purpose, such as:

  • Social media statistics ROI which pinpionts the effectiveness of social campaign. For example how many clicks and like are generated from a unit of effort or post.
  • Marketing statistics ROI, which tries to evaluate the attributed return on advertising or marketing campaign.
  • So called learning ROI, which is related to amount of information retained as a return on education or skill training.

In conclusion, as the world progress and economy changes. More niche form of ROI will be developed in process.

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2 Comments

  1. John adedayo

    Return on investment must be checked always to know your business performance.
    Thanks Jonathan enlighten our knowledge about ROI

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