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!

Question

Picture 1 (fireproof)

Picture 2 (Big Shot 2020)

Answer 1

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.

Mattijs

Answer 2

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.

Alessa

Answer 3

Hi Hannes, Thanks for your note! Indeed, we made a mistake when inserting the case study, as the calculation was not... (read entire answer)

Hi Hannes, Thanks for your note! Indeed, we made a mistake when inserting the case study, as the calculation was not supposed to be included anymore. We have corrected it immedi... (read entire answer)