Return on investment or also known as ROI is a pretty commonly known and used in various contents, either for measuring whether an investment is essentially worth doing or basing bonuses and remunerations on. A company can find other usage for the ratio as it sees fit, but let’s first define what ROI really stands for.

Return on investment or ROI is essentially used to measure rates of return per period on money invested in order to decide whether or not to undertake an investment. ROI is also used to compare investments into different projects, assets and so on. It should be needless to say, that the higher the ROI, the higher the rate of return on investment. 

How does one reach ROI? For measuring return on investment you can use a simple formula – divide net profit with the investment and multiply the result with a 100 to reach figures in percentage (that is you divide the return you’ll get from the investment with the expenses made as the investment). As you can imagine, only short periods are used for measuring the net profit, usually just 2-3 years and this as a result makes it somewhat risky when it comes to comparing ROI for different projects. Are they all comparable? Maybe ROI for some project is really high only because it includes short-term profits whereas another project relates to longer period cost decrease and efficiencies.

As such, when it comes to comparing ROI figures, one should always consider what the ROI inputs comprise of and what’s really behind the project.