Management Accounting
Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment relative to its cost. It measures the return or gain generated from an investment compared to the initial investment made. The formula for calculating ROI is as follows: ROI = (Net Profit / Initial Investment) * 100 Where: - Net Profit refers to the total return gained from the investment, which is the final value of the investment minus the initial cost. - Initial Investment is the total cost incurred to acquire the investment. For example, if you invested ₹1,000 in a stock and its value grew to ₹1,500 after some time, the net profit would be ₹1,500 - ₹1,000 = ₹500. To calculate the ROI, you would use the formula: (500 / 1000) * 100 = 50%. ROI is a valuable metric for comparing different investment opportunities and assessing their potential returns. It helps investors make informed decisions and prioritize investments that offer higher returns relative to their costs.