Return on Investment (ROI)
investmentAlso known as: ROI, return on investment, rate of return
Updated · Written and reviewed by Konstantin Iakovlev
Detailed explanation
A $10,000 investment now worth $15,000 has 50% ROI regardless of whether that took 1 year (annualized 50%) or 10 years (annualized 4.1%). For real-estate: cash-on-cash ROI = annual cash flow / cash invested (excludes appreciation and principal paydown). For business projects: include opportunity cost (what you could have earned with the next-best alternative). Pretax vs after-tax ROI matters at higher brackets. Risk-adjusted return (Sharpe ratio) divides excess return over risk-free rate by volatility — penalizes high-volatility paths to the same destination. Use IRR for projects with uneven cash flows over time.
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