Return on investment (ROI) = annual profit or average annual profit/total investment x 100%, from the formula, we can see that the enterprise can reduce the cost of goods sold to improve profitability; improve the efficiency of asset utilization to improve the return on investment. The advantage of return on investment (ROI) is that it is simple to calculate. Return on investment (ROI) tends to be time-sensitive - returns are usually based on certain specific years.

ROI it covers the profitability objectives of the business. Profit is related to the property necessary to invest in the business, as managers must make a profit from investments and existing property. Investment can be categorized into two main types: industrial investment and financial investment, and what people usually call financial investment mainly refers to securities investment.

Expanded Information:

Advantages

Rate of Return on Investment (ROI) reflects the comprehensive profitability of the investment center, and because of the exclusion of the different amounts of investment due to different Since the incomparable factor of profit difference is eliminated, it is horizontally comparable, which is conducive to judging the advantages and disadvantages of the operating performance of investment centers; in addition, the investment profit margin can be used as a basis for selecting investment opportunities, which is conducive to optimizing the allocation of resources.

Disadvantages

The shortcoming of this evaluation index is the lack of a global view. When the ROI of an investment project is lower than that of an investment center and higher than that of the whole enterprise, although the enterprise wishes to accept the investment project, the investment center may reject it.

Baidu Encyclopedia - Return on Investment