What investing term means the profit or loss on an investment expressed as a percentage of its original cost?

Return on investment, commonly abbreviated ROI, means the profit or loss on an investment expressed as a percentage of its original cost.

A basic ROI calculation subtracts the original investment cost from the final value, then divides the result by the original cost. Multiplying by 100 converts the result to a percentage. An investment bought for $100 and sold for $120 therefore has a 20% ROI before considering fees, taxes, or income received during ownership.

ROI is useful for comparing investments, but it has limits. A simple ROI does not automatically account for how long money was invested, so it can make a short investment and a long investment look comparable. Annualized return measures are better when time periods differ.

ROI can include realized gains, unrealized changes in value, dividends, interest, and other cash flows, depending on the calculation. It should not be confused with return on equity, which measures a company’s profit relative to shareholders’ equity.