What Is Return On Investment: Here's An Explanation And Benefits

What Is Return On Investment (Camanggastar Image-Freepik)

YOGYAKARTA - Return on investment or ROI is an indicator for calculating profit and investment comparisons. Let's learn more about what return on investment is below!

Return on investment or ROI is one of the important indicators for investors, both private investors and companies that invest their funds into a business line. With the calculation of ROI, you can identify how effective the performance of investment instruments are, both in the form of stocks, mutual funds, or business branches.

For multinational industries with many business lines, ROI is one of the main indicators of the survival of the company branch. If a branch has a low ROI or even minus, the parent company can disable the line instantly. More about the meaning of return on investment, you can follow below.

Return on Investment or ROI is the ratio of profit and loss from an investment that is compared to the amount of money invested. In simpler sentences, the interpretation of ROI is a profit percentage that can be obtained from the total amount of relics invested. Return on Investment is an efficient method for seeing the effectiveness of a business.

ROI is also used to calculate how much funds are needed for investment. For example, if investors want to invest, the percentage of ROI can be used to convince investors to invest. ROI also calculates the company's actual financial potential to be able to divide annual income or profit with the amount of investment obtained.

The calculation of Return on Investment is very much needed by investors. Indirectly, ROI describes how much profit investors get if they invest their capital in a business. For example, if you want to invest in a business with a minimum ROI percentage of 5%. So at least you can get the same percentage of profit, or higher than the money invested.

Return on Investment is also used to measure the success of a project. For example, your company invests funds for a campaign program. The company will analyze the sales proceeds obtained with the money spent on a campaign to determine ROI.

If the money generated is more than the amount spent, it can be concluded that the campaign program brings benefits. But if the opposite, it can be concluded that the campaign program is ineffective and needs to be evaluated.

The Factors That Affect ROI

Here are some aspects that can influence Return of Investment (ROI):

Profit Margin. Or it can be called the ratio of the company's profit. The greater the profit margin calculation, the higher the profit ratio obtained in Return of Investment will also be.

Benefits of Return on Investment (ROI)

Return on Investment has many benefits. The following are the benefits of ROI for investors and companies:

In addition, read also: 'How to Calculate ROI' to understand more.

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