return on investment (ROI)
Return on investment(ROI) is a measure of the profitability of an investment; of the amortization of investment costs. The return on investment says something about the return on capital generated, about the return on invested capital in a given period. From the return on investment, the profit per unit of capital invested can be determined.
ROI analysis can be performed in three ways depending on the requirements: Calculation of the payback period, consideration of the value of a project in terms of cash flows, the Net Present Value (NPV), and the internal rate of return of a project, the Internal Rate of Return (IRR). In practice, the payback period is usually used.
The ROI system originates from America and was developed in the 1920s. In Germany, the ZVEI (German Electrical and Electronic Manufacturers' Association) has further developed the system into a key figure system. Since return on investment is becoming increasingly important in all investment-related areas of IT technology, the return on investment can be determined from these key figures.
The profitability calculation is based on the turnover rate of the capital employed and the return on sales.