Return on investment (ROI) is a performance metric used to assess an investment's

effectiveness or profitability or to compare the effectiveness of several investments. ROI aims to

determine the amount of yield on a specific investment in relation to the cost of the investment.

ROI is calculated by dividing the benefit (or return) of an investment by the investment's cost i.e.

(sum of longterm liablity and equity). A percentage or ratio is used to represent the outcome of

ROI.

An indicator of an investment's profitability is return on investment (ROI). ROI measures

the effectiveness of an investment by comparing the cost to the return. ROI measures Return on

investment so the result assist the investor to make investment decision. The ROI is intended to

calculate; the amount of risk that can be taken, consequences if investor loses his/her invested

money, how much profit is needed for the investment to eliminate risk of losing money, what

else an investor could invest on with the money, if he/she does not make one particular

investment (Curry, 2022).

Businesses can use two different sorts of data to understand their financial success when

deciding how to use their financial resources. The terms return on investment and return on

assets both refer to the kind of computation used to show financial experts and business

executives how a company makes money. You can better understand a firm's performance by

comprehending various financial viewpoints, and you may utilize this knowledge to guide

stakeholders or decision-makers within a company.

Return on assets (ROA) is a financial metric used to assess the profitability of capital

expenditures made by a company. When ROA is calculated, the profits generated by a

corporation using its assets are displayed as a percentage. These numbers can help investors,
business executives, and financial specialists get a fair understanding of how well a firm is doing

and whether or not they are making appropriate use of their resources.

To assess the historical and current performance of investment assets, ROA is utilized for

internal accounting and auditing purposes. Additionally, it can be used to contrast one company's

performance with that of rivals, giving stakeholders direction when making financial decisions.

While ROA is established by looking at corporate profitability following the acquisition of assets

like factory equipment and technology, ROI is derived by looking at profits created through

invested capital.

References:

Curry, B., (2022). Return on Investment (ROI). Forbes Advisor.

https://www.forbes.com/advisor/investing/roi-return-on-investment/#:~:text=Return

%20on%20investment%20(ROI)%20is,earned%20to%20evaluate%20its%20efficiency.

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13 th

ed.). McGraw-Hill