Return on Investment (ROI) should be extremely important to owners of almost any type of business. But do all business owners know exactly what it is? And are they all operating off of the same definition of ROI?
According to Wikipedia, Return on Investment (ROI) is “the concept of an investment of some resource yielding a benefit to the investor.” Entrepreneur.com calls it “a profitability measure that evaluates the performance of a business by dividing net profit by net worth.” No matter how it is defined, ROI’s significance to a company’s bottom line shouldn’t be ignored.
The purpose of ROI is to determine a company’s rate of return on money it might want to invest in its business, and then decide if the investment is financially wise for them to make. ROI gauges how well a business uses its capital to generate profit. A higher ROI basically says that the cost of the capital invested will return to the company with even stronger profits.
There are multiple methods of evaluating ROI available online, including interactive ROI calculators, which can be helpful. Even with these tools, keep in mind that finding out ROI comes down to measuring the past performance of your company with future factors that may not be static and are based on estimations and assumptions.
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