What does ROI stand for in a business context?

In a business context, ROI stands for Return On Investment. This metric is crucial for evaluating the efficiency and profitability of an investment. It measures the gain or loss generated relative to the cost of the investment, allowing businesses to assess which investments are providing the best returns.

Calculating ROI involves dividing the net profit from the investment by the initial cost and often expressing it as a percentage. This enables companies to compare the profitability of various investments and make informed decisions about where to allocate resources for maximum financial benefit. Understanding ROI is essential for managers and stakeholders to ensure that capital is used effectively and to prioritize projects that yield the highest returns.