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Return On Investment (ROI)

What is ROI?

ROI is the amount of return that can be expected from an investment outlay. Ideally it is more than that invested.

ROI can be expressed in two ways depending on the circumstances;

  1. The total percentage return (point B), or

  2. The amount of time to return the original outlay (the break-even point – point A).

Return on Investment

Why is ROI Important?

Point 1 (total return) indicates how much is going to be returned but this could be over any length of time. This would hopefully recover the original amount plus a profit (greater than 100%). People usually invest to earn a profit, as profit is income.

 

Point 2 (time to break even) indicates how long it will it take to return the original investment amount. Investors usually like a profit but may hesitate if it takes much longer than they expect. Some are impatient while others maybe more at ease with longer time periods. It all comes down to their needs and goals.

Different investments have different profiles, so ensure you know the profile before diving in.

Further Reading

Rate of Return (wikipedia)