Return on Investment (ROI) is a financial metric used to assess the profitability and efficiency of an investment by comparing the return generated to its cost. It is calculated using the formula:
“ROI”=”Net Profit” /”Cost of Investment” ×100.
It is expressed as a percentage. ROI is widely used in business decisions, marketing campaigns, and project evaluations because it provides a simple way to compare different investment options. A higher ROI indicates better profitability. For example, if a company spends ₹50,000 on a digital marketing campaign and earns ₹75,000 in additional revenue, the ROI would be:
“ROI”=(75,000-50,000)/(50,000)×100=50%
This means the campaign generated a 50% return on the initial investment. However, while ROI is easy to calculate and useful for quick comparisons, it has limitations—it does not account for the time value of money, risk factors, or external variables that may affect returns.