What does "return on investment" (ROI) measure?

Return on investment (ROI) is a financial metric used to evaluate the profitability or effectiveness of an investment relative to its cost. It is calculated by taking the net profit from the investment, dividing it by the initial cost of the investment, and then multiplying by 100 to express it as a percentage. This shows how much profit is made for every dollar spent on the investment.

This measure is crucial for investors and businesses as it provides insight into how well an investment is performing. A higher ROI indicates a more efficient investment, making it easier for stakeholders to compare different investments or projects and determine where to allocate resources for the best financial returns. Understanding ROI helps businesses make informed decisions about where to invest their capital for optimal growth and profitability.

The other options, while relevant to business, do not define ROI accurately. Total revenue pertains to overall sales, market value relates to the company's total worth in the stock market, and employee salary focuses on compensation rather than investment returns.