The return on investment (ROI) measures the profit earned from each investment and is calculated as a percentage.
This profitability ratio compares the efficiency of the benefit (or “return”) relative to the cost, so the general formula for calculating the ROI is:
ROI = (Profit after interest and tax – Total cost) / Total cost
In simpler words, the ROI shows how much money you make from every dollar you invest. The metric can be used as an indicator for appreciating the potential gains of investment, before making the purchase, funding or investment decision.