What is 'return on investment' (ROI) used to measure?

What is 'return on investment' (ROI) used to measure?

• A. The interest rate of a loan
• B. The profitability of an investment
• C. The market price of shares
• D. The growth of assets over time

Answer: (B)

Return on investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment relative to its cost. It is expressed as a percentage and calculated by taking the net profit from the investment, subtracting the cost of the investment, and dividing that figure by the cost of the investment. This metric provides insight into how effectively an investment has generated profit and helps investors compare the profitability of different investments or business initiatives. By focusing on ROI, individuals and businesses can determine how well their capital is being utilized to generate earnings. A higher ROI indicates a more profitable investment, while a lower ROI may suggest a need for reevaluation or reconsideration of the investment strategy. The other options pertain to different financial concepts: the interest rate of a loan relates to borrowing costs, the market price of shares refers to the value of publicly traded company stock, and the growth of assets over time is a broader measure of asset accumulation rather than the efficient return on specific investments. Thus, ROI specifically highlights the profitability aspect of investments, which is why the correct answer is focused on this area.

Return on investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment relative to its cost. It is expressed as a percentage and calculated by taking the net profit from the investment, subtracting the cost of the investment, and dividing that figure by the cost of the investment. This metric provides insight into how effectively an investment has generated profit and helps investors compare the profitability of different investments or business initiatives.

By focusing on ROI, individuals and businesses can determine how well their capital is being utilized to generate earnings. A higher ROI indicates a more profitable investment, while a lower ROI may suggest a need for reevaluation or reconsideration of the investment strategy.

The other options pertain to different financial concepts: the interest rate of a loan relates to borrowing costs, the market price of shares refers to the value of publicly traded company stock, and the growth of assets over time is a broader measure of asset accumulation rather than the efficient return on specific investments. Thus, ROI specifically highlights the profitability aspect of investments, which is why the correct answer is focused on this area.