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Hi, I am confused about what exactly is the formula for ROI. Is it (Profit-Cost)/Cost (see picture 1) or Profit/Cost (see picture 2)? Both cases are from Darden and googling online both equations show up. Thank you a lot!
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Hi,
ROI is the return on investment, so the gains (profit) over the investment (cost). The ROI does not have a unit (so no dollar value). The ROI is positive if the number is higher than 1 (meaning you have more gains vs. costs).
Some books use the alternative definition of ROI (profit/cost -1). In that case, a ROI is positive if the outcome is >0. Let me know if you have other questions.
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hey!
The correct formula for ROI in the context you're looking at is Profit / Cost (as shown in Picture 2). This is a common approach in financial analysis to assess how much profit is generated for each dollar of cost. The formula you mentioned from Picture 1, (Profit - Cost) / Cost, is another variation but is less commonly used in the industry.
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Hey there,
The technically correct answer is the second one there, where ROI is the Profit / Investment Cost
The name "Return on Investment" can be used as a guide to help you remember or know what you should be looking for.
The challenge is when the question wants a net cashflow impact instead of profit. That is when you get number 1 (which is not technically correct). And for this reason, clarifying your approach is critical and is what can help you not get into a sticky situation
When preparing for case interviews, ROI and ROAS are two concepts you'll encounter repeatedly. Both are key metrics that enable you to evaluate a company's success and measure the efficiency of investments.🔎 In this article, you’ll learn how to correctly apply ROI and ROAS in your case analyses and how to structure your answers clearly. What is ROI, And Why is it Important For Case Interviews?Return on Investment (ROI) measures how much profit a company generates relative to its investments. This metric helps you assess whether an investment was worthwhile. In a case interview, ROI is particularly useful for evaluating the efficiency of a proposed strategy or project.💡 Pro tip: A positive ROI means the company is earning more than it has invested, indicating a profit. A negative ROI points to losses.How to calculate ROI:Example: If a company invests €100,000 and earns €120,000, the ROI is 20%. This means the company has achieved a 20% profit on its investment.
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