What is a return on investment (ROI)?
ROI stands for “return on investment.” It is a ratio used to measure the value of an investment—simply put, the benefit of putting your time, money, or resources into something.
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For example, let’s say you invest $1,000 in Google and then sell your shares for $1,500 two years later. To calculate your return on investment:
- Return on Investment is typically expressed as a percentage, so your return on investment would be 50%.
- A positive ROI is considered a good return.
- A negative ROI means that the revenue wasn’t even great enough to cover the original cost.
- Something to remember about return on investment is that it doesn’t take into account the time value of money (does not take time into consideration). It’s better to get a 20% return over one year than a 20% return over two years.
Uses for return on investment calculation
- Real Estate Investing
- Social Good
- Scientific Advances