Return On Investment

Return On Investment (ROI) is another fundamental financial and business performance measure. Many business managers and owners use the term in a general sense as a means of assessing the merit of an investment or business decision. Return generally means profit before tax, not least the accounting conventions used in the business. Strictly speaking Return On Investment is defined as:

Profits derived as a proportion of and directly attributable to cost or book value of an asset, liability or activity, net of depreciation. In simple terms this the profit made from an investment. The investment could be the value of a whole business. A company´s book value might be higher or lower than its market value. The main point is that the term seeks to define the profit made from a business investment or business decision. Bear in mind that costs and profits can be ongoing and accumulating for several years, which needs to be taken into account when arriving at the correct figures.

Updated On: 09.10.04