What is ROI?

ROI is short for return on investment. It is a financial metric used to determine how much a business or company has earned on its investments. To calculate it, it is necessary to know the total revenues and subtract the costs from these, dividing these results by the total costs.

If you are interested in the field of economics in business and in other areas, the Bachelor in Business Administration at Universidad Europea will give you the skills you need to face the challenges demanded to work in the financial sector.

What is return on investment?

The return on investment (ROI) is a formula that provides relevant data on the profits and economic returns of a company. It gives as a result the profit or loss generated in a company in relation to the cost of the investment made.

This formula allows entrepreneurs and investors to know at a given point in time whether operations or investments remain profitable throughout the entire cycle. It is key performance indicators by managers and other senior personnel in the business sector. 

Return on investment: strategies

To obtain the best results in terms of return on investment, here are some of the strategies that can be implemented.

• Analyse and make previously studied investments: before making any type of investment, research and evaluate the different opportunities considering factors such as growth potential, time to profit or risk.
• Tracking and measuring ROI: this allows you to see which investments are working well and which are not.
• Optimising costs: to maximise ROI, control costs by taking actions such as using efficient technologies or negotiating with suppliers.
• Diversification: this can help reduce risk and increase the likelihood of positive returns overall.

Return on investment or ROI formula

The formula for calculating ROI is very simple and the solution is expressed as a percentage. You need to have all the data you are going to use at hand.

• Investment: money you have invested in implementing an action.
• Profit: money received for carrying out that action.
• Formula: ROI = [(profit-investment) / investment]*100

How to calculate the return on investment: An example

To understand it in a more visual way, let's use a simple example of a company.

Imagine that a share has made you a profit of €2,700, and previously the company invested €1,000. 

• First you have to calculate the profit on the money invested: €2,700 - €1,000 = €1,700.
• The result obtained has to be divided by the investment and multiplied by a hundred: (1.700 € / 1.000) * 100 = 170 %.

The final solution indicates that the action taken by the company has achieved a return of 170%, so that the action has been profitable for the business.

In conclusion, the return on investment is a financial formula that is widely used at a business level regardless of the area of the company where you are. If you find it interesting, you can also take the International Business Degree or the Master in Business Administration in Madrid at the Universidad Europea and learn more about the ROI approach in this business field.