Return on investment : Meaning, Formula and Example


The return on investment measures the efficiency of an investment and can also be used to compare a number of past or prospective investments.

Formula for Return on investment

\[Return\,on\,investment = \frac{{Net\,income}}{{Cost\,of\,investment}}*100\]


An investor purchases property A, which is valued at Rs.5,00,000. A years later, the investor sells the property for Rs.7,00,000.

ROI = (7,00,000 – 500,000) / (500,000)*100=40%