What is the difference between ROI and payback period?
An example of an AI chatbot conversation about ROI vs payback period in investment analysis.
What is the difference between ROI and payback period?
ROI, or Return on Investment, measures the profitability of an investment, while payback period indicates how long it takes to recover the initial investment.
Can you explain how to calculate ROI?
To calculate ROI, subtract the initial investment from the final value of the investment, then divide by the initial investment and multiply by 100 to get a percentage.
And how do I calculate the payback period?
The payback period is calculated by dividing the initial investment by the annual cash inflow. It tells you how many years it will take to recover your investment.
Which one is more important for evaluating an investment?
Both metrics are important; ROI gives you a percentage of profitability, while payback period shows liquidity and risk. It depends on your investment goals.
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