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Episode 243 - Financial Literacy For Business - ROI
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Extract from Mornings With Scott Live Stream
Introduction to ROI:
Return on Investment, or ROI, is a key metric used to evaluate the profitability of an investment. It measures the gain or loss generated relative to the amount of money invested, providing insights into the efficiency and profitability of various business activities.
Calculating ROI:
ROI is calculated by dividing the net profit by the investment cost and then multiplying by 100 to get a percentage. For example, if you invest $1,000 and earn $1,200, the net profit is $200, and the ROI is 20%.
Applications of ROI:
ROI is used in various contexts, such as evaluating project profitability, measuring the effectiveness of marketing campaigns, assessing the return on asset purchases, and determining the impact of employee training programs.
Limitations of ROI:
ROI has limitations, such as not accounting for the time value of money, not considering the risk associated with the investment, and potential inaccuracies due to cost fluctuations over time.
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