ROI is a profitability ratio used to evaluate the gain or loss generated on an investment. In other words, it indicates how much money was earned on an investment, expressed as a percentage of the purchasing price/ initial investment.
How to calculate ROI:
Formula: ROI = (investment revenue – investment cost) / (investment cost)
This formula is pretty simple and is adaptable to different kinds of investments such as marketing campaigns or hotel asset acquisitions. However, its flexibility has a downside; this ratio can be manipulated according to one’s perception. The use of the same inputs is essential, to have a good comparison.
Also note that this indicator does not take the time value of money into consideration.