Why is return on Investment such an important metric?

How do you track how well your investment is doing? Simply by determining your return on investment or ROI. What is the return on investment? Return on investment is defined as a financial metric of profitability that is widely used to measure the return or gain from an investment. ROI is a metric used to measure directly the amount of return on a specific investment, in relation to the cost of the investment. The calculation of ROI is very simple the result is represented by a percent, you subtract the amount gained from the investment minus the amount spent on the investment divided by amount spent on the investment multiplied by 100, see the example for the full explained calculation: 

ROI is a very popular metric used in the business world. Why is ROI a popular metric? ROI is a very commonly used metric because of its ability to determine the importance of investment in a versatile and simple manner. Return on Investment can essentially be used as a method of determining an investment’s profitability. The calculation of ROI is very simple as seen above, and it is very easy to use for a variety of applications. If an ROI is found to be net positive, then the investment is considered to be a smart choice ROI can determine if an investment is worthwhile based on its calculation. Return on investment is one of businesses’ and an investor’s greatest tools to determine which opportunities to go with, as well as to select or eliminate their best options.

By: Brandon Diaz

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