What does “ROI” represent in finance?

In finance, "ROI" stands for Return on Investment. This term is a key performance metric used to evaluate the efficiency or profitability of an investment, providing insights into the potential return gained relative to the investment's cost. It is calculated by taking the net profit from the investment, dividing it by the original cost of the investment, and often expressing this result as a percentage.

Understanding ROI is essential for finance officers, as it helps in making informed investment decisions and comparing the profitability of various investment opportunities. Using ROI allows businesses to assess how well their resources are being utilized to generate profit, thereby guiding strategic planning and resource allocation.

Other terms provided do not accurately reflect the standard terminology used in finance. For instance, "Return on Interest" suggests a focus on interest rather than overall investment returns, "Revenue on Investment" conflates revenue generation with net profitability, and "Ratio of Income" does not capture the complete essence of measuring profitability relative to costs. Therefore, "Return on Investment" is the most precise and widely recognized term in financial discussions about investment returns.