What Is Return on Investment (ROI)?
Return on investment is the most general measure of how profitable an investment is. It compares the gain produced by an investment to what the investment cost, expressed as a percentage. Unlike return on assets or return on equity, which are tied to financial statements, ROI is flexible: it can measure the return on a marketing campaign, a piece of equipment, a software project, or an entire business. That flexibility is why it is one of the most widely used, and sometimes most loosely defined, metrics in business.
How to Calculate Return on Investment
ROI % = (Gain from Investment – Cost of Investment) / Cost of Investment
Worked example:
- Cost of investment: $100,000
- Gain from investment: $130,000
- Net return: 130,000 – 100,000 = $30,000
- ROI: 30,000 / 100,000 = 30%
A 30% ROI means the investment returned thirty cents for every dollar put in, on top of recovering the original cost.
Return on Investment in Power BI (DAX)
The measures depend entirely on what is being analyzed. Replace them with the gain and cost relevant to your investment:
ROI % = DIVIDE ( [Return] - [Investment Cost], [Investment Cost] )What ROI Does and Does Not Tell You
ROI is simple and comparable, which is its strength, but it has limits. On its own it ignores time: a 30% return over one month is very different from 30% over five years, which is why annualized ROI is often used for longer horizons. It is also only as honest as the costs and gains included, and incomplete cost accounting is the most common way ROI is overstated. Used carefully, with full costs and a clear time frame, it is a powerful comparison tool.
ROI vs ROA and ROE
ROI, ROA, and ROE all measure return, but at different scopes. ROA and ROE are standardized financial ratios tied to the balance sheet, total assets and shareholders’ equity respectively. ROI is a general-purpose ratio that can be applied to any investment, inside or outside the financial statements. ROA and ROE compare companies; ROI usually compares decisions.
Reporting ROI From Your Data
A trustworthy ROI depends on capturing the full cost and the resulting gain, which often means pulling data from across finance, operations, and sales rather than a single report. A governed data foundation brings those sources together so the costs and returns behind an ROI are complete and consistent. QuickLaunch builds that foundation for JD Edwards, Vista, NetSuite, and OneStream, so the numbers behind an investment decision tie back to the same governed data.
Frequently Asked Questions
How is return on investment calculated?
Subtract the cost of the investment from the gain, then divide by the cost. An investment that costs $100K and returns $130K has a $30K net return and a 30% ROI.
What is a good ROI?
It depends on the investment, the risk, and the time frame. Because ROI ignores time on its own, a return is best judged against the period it took to earn and against the alternatives.
What is the difference between ROI, ROA, and ROE?
ROA and ROE are standardized financial ratios using total assets and shareholders’ equity. ROI is a general-purpose measure that can be applied to any investment, which makes it flexible but more loosely defined.
About the Author
