Definition of Return On Investment

Return on investment is a profitability measure that tells us how well an investment has returned in terms of positive cash flows. ROI can be used to compare returns on various investments to understand which investment was better in terms of profitability.


For example, you purchased one share for $20 three years ago and now the current share price of the same share is $27. The return on investment can be calculated using this formula:

Return on Investment Formula


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