What does return on investment (ROI) measure?

What does return on investment (ROI) measure?

• A. The percentage of the total cost of purchasing an investment and the profit made from selling that investment.
• B. The time required to recover the initial investment.
• C. The market share gained from the investment.
• D. The level of customer satisfaction after the investment.

Answer: (A)

Return on investment focuses on profitability by comparing the gain from the investment to what was invested. It’s typically expressed as a percentage, calculated as ROI = (net profit / cost of investment) × 100, where net profit is the final value minus the initial cost (and any additional expenses). This shows how many dollars of profit you earn for every dollar invested, making it a clear measure of efficiency. It isn’t about how long it takes to recoup the initial outlay (that would be payback period), nor does it reflect market share or customer satisfaction after the investment.

Return on investment focuses on profitability by comparing the gain from the investment to what was invested. It’s typically expressed as a percentage, calculated as ROI = (net profit / cost of investment) × 100, where net profit is the final value minus the initial cost (and any additional expenses). This shows how many dollars of profit you earn for every dollar invested, making it a clear measure of efficiency. It isn’t about how long it takes to recoup the initial outlay (that would be payback period), nor does it reflect market share or customer satisfaction after the investment.