Definition
ROI is a general name for a measure of return on an investment. In a simple analytical version, the increase in value or net result is divided by the initial cost. Different tasks define result differently: project profit, cost savings or proceeds from selling an asset. Disclose the formula before comparing.
Example
If a hypothetical investment costs 100,000 roubles and total receipts for the project after all included expenses are 120,000, ROI is 20%. This is the result for the whole period, not necessarily an annual return. Omitting a cost will overstate the project’s attractiveness.
Limitations
ROI does not automatically account for payment timing, inflation or risk. Projects with the same ROI can last very different lengths. Use consistent expense definitions, cash flows and additional measures such as NPV. Do not transfer a project’s calculated return into a promised investor yield without checking the investment terms.