It is a performance measure which is used to evaluate the profit/loss generated on investment compared to the amount of money invested. Since it calculated in terms of percentage or ratio, ROI is used to compare the profitability or the efficiency of different investments.
The return on investment(ROI) formula:
1. ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment
“Current Value of Investment” refers to the proceeds obtained from the sale of the investment of interest.
2. ROI = (Net Profit / Cost of Investment) x 100 [in terms of percentage]