Rate of return (ROR), also known as return on
investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (realized or unrealized) on an
investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money
invested may be referred to as the asset, capital, principal, or the cost basis of the
investment. ROI is usually expressed as a percentage rather than decimal value.
ROI does not indicate how long an
investment is held. However, ROI is most often stated as an annual or annualized rate of return, and it is most often stated for a calendar or fiscal year. In this article, "ROI" indicates an annual or annualized rate of return, unless otherwise noted.
ROI is used to compare returns on
investments where the money gained or lost — or the money invested — are not easily compared using monetary values.
For instance, a $1,000 investment that earns $50 in interest generates more cash than a $100
investment that earns $20 in interest, but the $100
investment earns a higher return on
investment.
$50/$1,000 = 5% ROI
$20/$100 = 20% ROI
When considering a continuous process of gaining or losing money with a constant rate of return, the annual rate of return is any value greater than -100%; a positive percentage corresponds to exponential growth of the capital, a value between -100% and 0% exponential decay.