Return on investment formula is the financial ratio comparing the amount of income leveraged from an investment with the cost of the investment. Investors, bankers and business analysts often use ROI calculations in assessing a company's financial strength. There are several uses of ROI:
1) Measure company performance - ROI can be used by companies to determine how well it is utilizing equity investments. It offers a significant profitability indicator, which can be useful in comparing against industry average or even competitors.
2) Compare departments within a company - ROI can help a company pinpoint which divisions, centers or product lines are yielding significant returns and which are losing money.
3) Evaluate proposed investments - ROI can be used in determining if new investments, whether in equipment, people, money, education and other things that may need money, could become profitable in the long run.
4) Determine potential gains or losses - ROI can be used by investors to determine if a new investment, whether in stocks or bonds, could yield gains or result in losses.
5) On a personal level, investments such as real estate purchases, stock shares and investment accounts are calculated using ROI to measure gains and losses.
Return on investment formula can help individuals, companies and other institutions in deciding whether they need to pursue an investment, discontinue a program or spot company departments that yield weak returns, giving them an edge over the industry or a competitor. This is true of someone who participates in online gambling where online poker tools include ROI, in order for a player to track an opponents statistics, to evaluate their profitability.
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