Return On Investment (ROI) is typically defined as the ratio of net income (profit minus depreciation) to average employed capital (or equity capital) in a company or a project. Another commonly used definition of ROI is the benefit enjoyed as a result of investing in a resource: high ROI means that the gains compare favorably to the cost of investment.

Outside of financial circles, ROI can be applied to business practices and projects to determine whether a project or venture is worth pursuing. In the most general sense, the projected cost of a project is compared to the projected gains over a specified period of time. If the gains are greater than the cost, then the project has a favorable ROI and should be undertaken.

 

« Back to Glossary Index