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ROI
(Return on Investment)
ROI measures the profitability of an investment as a percentage of its cost, calculated as (Gain - Cost)/Cost. This universal metric allows comparison across projects, with 85% of businesses using ROI for capital budgeting decisions.
A 20% ROI means $1.20 is returned for every $1 invested. While simple, ROI has limitations - it ignores time (a 20% 1-year ROI beats 20% over 10 years) and risk. Variants include annualized ROI (adjusting for time) and social ROI for nonprofits. Marketing campaigns might target 5:1 ROI ($5 revenue per $1 spent), while venture capital seeks 10x+ ROI on successful startups. Always compare ROI to the opportunity cost (like S&P500's 10% average return).
A 20% ROI means $1.20 is returned for every $1 invested. While simple, ROI has limitations - it ignores time (a 20% 1-year ROI beats 20% over 10 years) and risk. Variants include annualized ROI (adjusting for time) and social ROI for nonprofits. Marketing campaigns might target 5:1 ROI ($5 revenue per $1 spent), while venture capital seeks 10x+ ROI on successful startups. Always compare ROI to the opportunity cost (like S&P500's 10% average return).