Return on Investment - ROI

CORE DEFINITION

Return on investment (ROI) is an economic term that refers to the percentage ratio between the income earned from an investment and its cost. It is a measure of profitability used to evaluate the efficiency or profitability of an investment, and to compare multiple investment projects to help investors make better investment decisions. ROI can generally be divided into total return (holding period return) and annual return. Total return is the overall return calculated directly regardless of the time of capital investment, and its formula is: Total Return = (Current Value of Investment - Cost of Investment) / Cost of Investment × 100%. For example, in stock market investment, suppose you buy 100 shares of a company at $100 per share and sell them one year later at $150 per share. Without considering dividends, your total return on this stock investment would be: [(150×100) - (100×100)] / (100×100) × 100% = 50%. The total profit during the investment period typically includes capital gains (capital appreciation) and non-capital gains income.