What does ROI stand for, and what does it measure?

The correct term, ROI, stands for Return on Investment. It is a financial metric used to evaluate the profitability of an investment. Specifically, it measures the gain or loss from an investment relative to its cost, expressed as a percentage. This calculation helps businesses and investors determine how effectively their capital is being used to generate returns. By comparing the financial benefits of an investment against the original cost, stakeholders can make informed decisions about where to allocate resources for optimal financial performance.

Understanding ROI is crucial in finance and business since it provides insight into the effectiveness of investments, enabling stakeholders to assess whether the outcomes justify the initial costs. This metric is widely used because it provides a straightforward way to compare different investment opportunities and make decisions that align with financial goals and strategies.