Return on Investment (ROI) – A Definition

Return on Investment (ROI) doesn’t have a big mystery behind it; it is, in fact, exactly what it sounds – the returns you get when you make an investment. In financial terms, it is the money that an investor gains in relation with the money that he/she has invested. It is normally measured in percentage. To take a simple example, if you invest a £100 in a company and you get a return of £5, you could say your ROI is 5%.

Known in some circles as “Rate of Return” (ROR) or just “Return”, ROI is not always measured in terms of money. There are many other ways of investment other than investing in a company. Also, you need to keep in mind that a return on investment is not always monetary. For example, if you are investing on a vehicle, its quality and trouble-free performance is the ROI you get.

ROI need not always be profitable. If a company has a loss of, say, £20 a day, your ROI would be -20%. Whether your return on investment is more or less depends on the company you have chosen to invest in. Therefore, it becomes important that you invest in company that’s reliable.

Another important factor regarding the ROI is term of investment. At any rate, investing a small amount for a longer period of time could be much safer than investing a larger amount for a shorter period. The advantage here is that the amount of investment would not be a heavy bulk and you would get the additional interest of the money you invest. Also, there might be companies that offer you a higher rate of interest but might not be trustworthy. It is always safer to go for an average company that offers lesser return in 20 years than a new hot company that offers higher return in 2 years.

It is natural that you might feel alarmed by all these details. However, these are no big reasons for fear. Any plan of investment is better followed by expert ROI analysts who would provide you suggestions on any kind of investment plans you have. With professional and expert advice you could be lucky to see your money getting multiplied again and again.

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