What is a 'return on investment' (ROI)?

Return on investment (ROI) is a key financial metric used to evaluate the efficiency or profitability of an investment relative to its cost. It helps investors and businesses understand the gain or loss generated from an investment as a percentage of the original investment amount. By calculating ROI, stakeholders can assess whether or not the investment was worthwhile and compare different investment opportunities.

For example, if a company invests $1,000 in a project and earns $1,200 from that investment, the ROI would be calculated as: (Gain from Investment - Cost of Investment) / Cost of Investment, which is ($1,200 - $1,000) / $1,000 = 20%. This means the investment yielded a 20% return.

The other options do not accurately represent ROI. Total revenue relates to the overall income from sales before expenses are deducted, and market share analysis focuses on a company's sales relative to the industry. Analyzing consumer behavior pertains to understanding consumer preferences and purchasing patterns, which is distinct from financial investment analysis. Thus, the focus of ROI as a measure of investment efficiency makes it essential for making informed business decisions.