return on investment (ROI)

  

Definition

The 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 company or project.

Expressed usually as a percentage, return on investment is a measure of profitability that indicates whether or not a company is using its resources in an efficient manner. For example, if the long-term return on investment of a company is lower than its cost-of-capital, then the company will be better off by liquidating its assets and depositing the proceeds in a bank. Also called rate of return, or yield.

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