Return on Investment (ROI)

ROI puts profit and outlay on the same footing: subtract what you spent from what came back, then divide by what you spent. Two thousand dollars in and twenty-five hundred out is a 25% return. Because it is a ratio, it lets you compare a $500 tool purchase with a $50,000 vehicle on equal terms, which is precisely why it became the default language of business cases.

Its weakness is that it says nothing about time. A 25% return is superb over one year and dismal over ten, yet plain ROI reports the same number for both. Whenever two options run over different horizons, convert to an annual figure before comparing, or the shorter project will lose on paper while winning in reality. Watch the definition too: some people write ROI with the net gain on top and some with the total returned, and the two differ by exactly 1. Here $G$ is everything the investment gave back.