What does the acronym ROI stand for in financial terms?

The acronym ROI stands for Return on Investment, which is a key financial metric used to evaluate the efficiency or profitability of an investment. It measures the amount of return or profit generated relative to the original cost of the investment.

ROI is expressed as a percentage and is calculated using the formula:

[ ROI = \frac{(Net Profit)}{(Cost of Investment)} \times 100 ]

For businesses and investors, understanding ROI is crucial because it helps them make informed decisions about where to allocate resources for the best financial outcomes. A higher ROI indicates that the investment gains compare favorably to the cost, suggesting a more effective investment strategy. This metric is widely used in various contexts, including evaluating marketing campaigns, new projects, acquisitions, and overall financial health.

Other options, such as Rate of Interest, Revenue on Industry, and Return on Income, do not accurately represent the concept of ROI, as they refer to different financial measures or metrics not specifically designed to assess the profitability of an investment relative to its cost.