Return on Investment (ROI)
Definition
The gain from an investment relative to its cost, expressed as a percentage. A simple, general-purpose measure for comparing the payoff of different investments or projects.
Formula
ROI = (Gain from investment − Cost) ÷ Cost × 100
Related Terms in Financial Analysis
EBIT
Earnings Before Interest and Tax — a measure of operating profitability that strips out financing and tax effects. It is close to operating income and is used to compare the core performance of businesses with different capital structures.
EBITDA Margin
EBITDA as a percentage of revenue, showing operating cash profitability before interest, tax, depreciation and amortization. It is widely used to compare businesses, though it ignores real capital costs.
Operating Cash Flow
The cash a business generates from its normal operating activities during a period, before investing and financing flows. Positive operating cash flow shows the core business funds itself.
Free Cash Flow
The cash left after a business pays for the capital expenditure needed to maintain or grow its asset base. It is the cash genuinely available to repay debt, pay dividends or reinvest.
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