measure of the earning power of assets. The ratio reveals the firm’s profitability on its business operations and thus serves to measure management’s effectiveness. It equals net income divided by average total assets; also called rate earned on total assets. Other versions of ROI exist, such as net income before interest and taxes divided by average total assets. Return on investment is a commonly used measure to evaluate divisional performance.
financial benefits flowing from an investment, typically expressed as an annual percentage of the amount invested.
Example: The current ROI expresses annual cash flow compared to the investment. The Internal Rate of Return on investment also includes growth or decline in value and the timing of realization of amounts.