What does return on investment (ROI) measure?

What does return on investment (ROI) measure?

• A. Annual sales growth
• B. Market share dominance
• C. Profitability of an investment
• D. Employee satisfaction rates

Answer: (C)

Return on investment (ROI) measures the profitability of an investment by determining the ratio of net profit to the initial cost of the investment. It is a key financial metric used to evaluate the efficiency of an investment or compare the profitability of various investments. A higher ROI indicates that the investment has gained more profit relative to its cost, making it a desirable choice for investors and businesses. This measure helps in assessing whether the financial gains from an investment justify the amount of capital invested, guiding decision-making processes in a business context. In contrast, annual sales growth specifically focuses on the increase in sales revenue over a period, market share dominance pertains to a company's portion of an industry's sales, and employee satisfaction rates gauge the contentment of employees within the workplace. These aspects, while important in analyzing a business's overall performance, do not directly reflect the profitability of a specific investment like ROI does.

Return on investment (ROI) measures the profitability of an investment by determining the ratio of net profit to the initial cost of the investment. It is a key financial metric used to evaluate the efficiency of an investment or compare the profitability of various investments. A higher ROI indicates that the investment has gained more profit relative to its cost, making it a desirable choice for investors and businesses. This measure helps in assessing whether the financial gains from an investment justify the amount of capital invested, guiding decision-making processes in a business context.

In contrast, annual sales growth specifically focuses on the increase in sales revenue over a period, market share dominance pertains to a company's portion of an industry's sales, and employee satisfaction rates gauge the contentment of employees within the workplace. These aspects, while important in analyzing a business's overall performance, do not directly reflect the profitability of a specific investment like ROI does.