What does ROI stand for?

Return on investment

ROI, an abbreviation for Return on Investment, is a way to figure out how well an investment might have paid off. It’s a comparison of the money you put in versus the money you got out in the form of profits. The calculation is simple: you just divide the profits you made by the amount you initially invested. Then, you multiply this by 100 to get your ROI as a percentage.

Let’s take a real-world example to make it clearer. Say you decided to put $10,000 into your cousin’s coffee shop business. Later, you ended up getting $12,000 back. Your profit is the difference between these two amounts, which is $2,000.

To calculate the ROI, you divide this profit ($2,000) by your initial investment ($10,000). Then, multiply the result by 100. So, $2,000 divided by $10,000 equals 0.2. Multiply 0.2 by 100, and you get an ROI of 20%. Not bad at all! This figure easily outperforms most bank interest rates.

Example for using ‘ROI’ in a conversation

Hey, did you hear about that new startup?

Yeah, the one that makes those cool gadgets?

Exactly! I’m thinking of investing some money in it.

Oh, really? Are you sure it’s a good idea?

Well, I did some research and their ROI seems promising.

ROI? What’s that?

It stands for ‘Return on Investment’. It’s a way to measure how profitable an investment is.

Ah, got it. So how do you calculate it?

You divide the profits by the initial investment and multiply by 100 to get the percentage. It helps you see if it’s worth the risk.

That’s interesting. So, have you calculated the ROI for this startup?

Not yet, but I’ll definitely do that before making a decision.