Glossary - Return on Investment (ROI)
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. It’s expressed as a percentage and is calculated by dividing the net profit (or loss) of an investment by the initial cost of the investment. The formula for ROI is (Net Profit / Cost of Investment) x 100.
Also known as
- Rate of Return
- ROR
Use cases examples
- Annual Report: The ROI for our latest product launch was calculated at 150%, signifying a significant return on the initial investment made in the project.
- Investor Pitch Deck: Our projected ROI for the upcoming fiscal year is 75%, as we leverage innovative technologies to reduce costs and increase market share.
Considerations for investors
- Evaluating the ROI of potential investments allows investors to compare their options and choose the ones with the best potential for profitability.
- Investors should consider that high ROI projects may also come with higher risks and assess their risk tolerance levels accordingly.
Considerations for founders
- Understanding the factors that influence ROI can help in making informed decisions about where to allocate resources for maximum impact.
- Communicating ROI to current and potential investors is crucial in fundraising efforts and financial reporting.
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