The term return on investment, or ROI, is used to describe a number of financial metrics that are used to measure the profitability of a company. All of the return on investment metrics use variables found on both the income statement and balance sheet.
Return on investment is used by analysts and investors to understand management's ability to utilize available resources efficiently. Regardless of the size of the company, capital is always considered a scarce resource. Return on investment measures can be applied to the company's capital structure as well as in the evaluation of a subsidiary, a department, or even an individual project.
The three most common measures using the return on investment concept are:
Return on Assets: also known as ROA, this measure evaluates the net income produced by all of the assets owned by the company.
Return on Equity: also known as ROE, this measure evaluates the net income produced by stockholder's equity. In doing so, ROE eliminates debt from the ROA calculation. Increased use of leverage (debt) is sometimes used to increase ROE.
Return on Invested Capital: also known as ROIC, the calculation of return on invested capital is more complex than ROE and ROA. The equation for this measure uses net operating profit after taxes and invested capital (fixed assets plus non-cash working capital).
When drawing conclusions about the relative performance of a company, benchmark comparisons should be made with competitors in the same industry.
Additional information on this topic can be found in our publication: profitability ratios.
balance sheet, assets, net income, return on assets, return on equity, abnormal return
Explore Investing Further
Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.