Our word of the day is “Return On Investment” Return on investment is known as ROI. This

term means different things to different people often depending on perspective and what is

actually being judged so it's important to clarify understanding if interpretation has

serious implications. Many business managers and owners use the

term in a general sense as a means of assessing the merit of an investment or business decision.

'Return' generally means profit before tax, but clarify this with the person using the

term - profit depends on various circumstances, not least the accounting conventions used

in the business. In this sense most CEO's and business owners regard ROI as the ultimate

measure of any business or any business proposition, after all it's what most business is aimed

at producing - maximum return on investment, otherwise you might as well put your money

in a bank savings account. In simple terms this is the profit made from

an investment. The 'investment' could be the value of a whole business in which case the

value is generally regarded as the company's total assets minus intangible assets, such

as debt. or the investment could relate to a part of a business, a new product, a new

factory, a new piece of plant, or any activity or asset with a cost attached to it.

The main point is that the term seeks to define the profit made from a business investment

or business decision. Bear in mind that costs and profits can be ongoing and accumulating

for several years, which needs to be taken into account when arriving at the correct

figures.