Return On Investment (ROI)

(1) A measure of how much the company earns on the money the company itself has invested. It is calculated by dividing the company´s net income by its net assets. Or profits derived as a proportion of and directly attributable to cost or ´book value´ of an asset, liability or activity, net of depreciation. ´Return´ generally means profit before tax, profit depends on various circumstances, not least the accounting conventions used in the business. In this sense most CEO´s and company owners regard ROI as the ultimate measure of any business or any business proposition. The ´investment´ could be the value of a whole business (in which case the value is generally regarded as the company´s total assets minus intangible assets, such as goodwill, trademarks, etc and liabilities, such as debt; or the investment could relate to a part of a business, a new product, a new factory, a new piece of plant, or any activity or asset with a cost attached to it.
(2) The profit or loss resulting from an investment transaction, usually expressed as an annual percentage return. ROI is a return ratio that compares the net benefits of a project verses its total costs.