Finance · business glossary
What is ROI (Return On Investment)?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
The return earned on money invested, expressed as a percentage of what was put in — used to judge whether spending on a project was worth it.
ROI (return on investment) explained
ROI measures how much you gained relative to what you invested, expressed as a percentage.
formula
ROI % = (Gain from investment − Cost of investment) ÷ Cost of investment × 100
example
Spending ₹1 lakh on a machine that saves ₹1.5 lakh in costs gives an ROI of 50%.
why it matters
It helps compare projects and decide where money is best spent.
common mistake
Ignoring the time period — 50% over one year is very different from 50% over five years.
Frequently asked questions
What is ROI (return on investment)?
The return earned on money invested, expressed as a percentage of what was put in — used to judge whether spending on a project was worth it. ROI measures how much you gained relative to what you invested, expressed as a percentage.
How do you calculate ROI (return on investment)?
ROI % = (Gain from investment − Cost of investment) ÷ Cost of investment × 100. Spending ₹1 lakh on a machine that saves ₹1.5 lakh in costs gives an ROI of 50%.
Why does ROI (return on investment) matter?
It helps compare projects and decide where money is best spent.
What is a common mistake with ROI (return on investment)?
Ignoring the time period — 50% over one year is very different from 50% over five years.
Related terms
ROCE (return on capital employed)
How efficiently a business turns the total capital invested in it — both debt and equity — into operating profit.
Break-even point
The sales level at which total revenue exactly equals total costs, with no profit and no loss.
Valuation
An estimate of what a whole business is worth, used when raising investment, selling, or bringing in a partner.