Return on Investment

In: Business and Management

Submitted By ifyouwantnot
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Return On Investment is a percentage that is calculated based on investment and profits, for the rate of return on investment.
The ROI is a value that measures the performance of an investment, to assess how efficient the spending is, by what we are doing or plan to do. There is a formula that gives us this calculated value based on the investment and profits.
ROI = (profits – investment) / investment
We have obtained the profit of an investment (or plan to get) minus the cost of investment. After that we divide by the cost of the investment and the result is the ROI.

For example (simple), we have made an investment of 2000€ and we have obtained 6000€. Then the ROI would be equal to (6000 - 2000) / 2000 = 2
The value of the ROI is a rate so it is expressed as a percentage. We have a ROI of 2%.
To know the percentage of profit on our investment we can multiply the ROI by 100. With an ROI of 2% we are actually earning 200% of the money invested. For each euro invested we are getting 2€ back.

The ROI is a very simple parameter calculation to find out how positive an investment will be. How higher the values of the ROI how better. If we have a negative ROI it is because we are losing money. The ROI is the best manner to calculate investment results, especially to compare two potential investments.
EXAMPLE: ROI of Adwords. (Google advertisement)
The ROI can be used for any type of investment. For example, for an advertising investment we can calculate this rate with the following formula, to see the economic return of our ads.

ROI = (Income - Costs) / Costs
Making an investment of 1000€ and obtain 2500€ advertising sales on our website. Then the ROI would be as Adwords, (2500 - 1000) / 1000 = 1.5 (obtaining a 150% of our investment in advertising).

We could use this value to calculate the effectiveness of a campaign, but an analyst would have had in…...

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