Return on Investment (ROI)

tl;drA performance measure comparing the gain from an investment relative to its cost, typically expressed as a percentage.

ROI helps evaluate investment effectiveness and compare alternative opportunities.

Imagine a company investing $1 million in new equipment that generates annual cost savings of $300,000. The 30% ROI (annual return divided by investment) helps justify the expenditure and compare it with alternatives like outsourcing or maintaining existing equipment.

Calculating ROI requires accurate measurement of both returns and costs. Organizations must consider timing, risk, and indirect effects while ensuring consistent measurement.

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