What is the difference between ROI and other performance metrics?

What is the difference between ROI and other performance metrics?

ROI, or Return on Investment, measures the profitability of an investment relative to its cost. Other metrics, like ROE (Return on Equity) or profit margin, focus on different aspects of financial performance.

Can you explain how ROI is calculated?

Sure! ROI is calculated using the formula: (Net Profit / Cost of Investment) x 100. This gives you a percentage that represents the return on your investment.

What are some limitations of using ROI?

Some limitations of ROI include its inability to account for the time value of money, risk factors, and it may not reflect the full picture of an investment's performance.

How does ROI compare to metrics like NPV or IRR?

ROI is a simple profitability measure, while NPV (Net Present Value) considers the time value of money, and IRR (Internal Rate of Return) provides the rate of return at which NPV equals zero. Each has its own use case depending on the investment analysis.