Return on Investment

Description:

The efficiency of an investment based upon the ratio of money lost/gained relative to the total capital investment over a given time frame/project. Return on investment must be considered in association with an appropriate time frame, some projects may yield short term returns while others require a longer-term view with expected “payouts” lagging behind the initial capital expenditure but continuing for several years thereafter. The return on investment may be calculated on completion of a project or over a specific part of a project to inform progress on rate of return. This information may be used to understand how a particular project or company is performing, or to inform investment decisions prior to committing capital to a project/company.

Calculation:

(Gain from the investment – the cost of investment) divided by cost of investment.

Example:

Increased Market Awareness – through the provision of a new website e.g. calculation made after I year: (Gain from the investment of £50,000 – costs of investment £32,000) divided by cost of investment £32,000 = 0.56 0.56 x 100 = 56% ROI over 1 year.