Rate of Return

In finance, rate of return is a comparison of the money earned (or lost) on an investment to the amount of money invested.

Rate of Return or Return on Investment (ROI) is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment.

ROI is also known as rate of profit, rate of return or return. Return can also refer to the dollar amount of gain or loss. ROI is the return on a past or current investment, or the estimated return on a future investment. ROI is usually given as a percent rather than decimal value.
ROI does not indicate how long an investment is held. However, ROI is most often stated as an annual or annualized rate of return, and it is most often stated for a calendar or fiscal year. In this article, “ROI” indicates an annual or annualized rate of return, unless otherwise noted.

ROI is used to compare returns on investments where the money gained or lost -- or the money invested – are not easily compared using dollar values. For instance, a $1,000 investment that earns $50 in interest obviously generates more cash than a $100 investment that earns $20 in interest, but the $100 investment earns a higher return on investment.