Overview
{% ROI %} (return on investment) is a financial measure used to evaluate how much a given project contributes to the company's bottom line.
{% ROI = \frac{return}{investment} %}
Positive ROI does not by itself indicate that a particular project is beneficial to a company. A company
has limited resources and possibly a wide array of projects.
Typically a company will rank order investments and choose the ones with the highest ROI.
For the more sophisticated companies, a projects contribution to the enterprise risk of the firm is also a vital consideration. That is, projects with high ROI and low contribution to risk are favored.
In addition to not fully accounting for risk, ROI can have some other downsides. Typically, it does not account for the timing of the cash flows. That is, expense may occur over multiple periods, and the returns may not accrue all at once. The time value of money would indicate that these differences need to be accounted for. Measures such as present value and internal rate of return.