return on investment (ROI)

Definition

Earning power of assets measured as the ratio of the net income (profit less depreciation) to the average capital employed (or equity capital) in a firm or project. Expressed usually as a percentage, it is a measure of the profitability which (while not taking the time value of money into account) indicates whether or not a firm is using its resources in an efficient manner. For example, if the ROI of a firm (in the long run) is lower than its cost-of-capital then the firm will be better off by liquidating its assets and depositing the proceeds in a bank. Also called rate of return, or yield.