Return on Investment, or ROI, is the ratio for determining profitability. This lets businesses determine how much profit they are receiving (or how much cost they are saving) for a given investment.
Functions vary depending on factors specific to the business, but the basic formula is:
For a simple example, let’s say you decide to loan your brother $50. If he pays you back $55, then your return on investment would be calculated as follows:
ROI = ($55 – $50)/$50 × 100 =.1 ×100 = 10%
The return on your investment to your brother was 10% (and he’s a GREAT brother!)