What is Return on Investment?
Return on investment (ROI) is a financial ratio that compares the gain or loss from an investment to the cost of that investment. It expresses profitability as a percentage and is one of the most widely used capital allocation metrics.
How It Works
- Identify the net gain from the investment — revenue or cost savings minus all related costs.
- Identify the total amount invested.
- Divide the net gain by the total investment.
- Multiply by 100 to express ROI as a percentage.
- Compare the ROI against the cost of capital and alternative investments.
Saudi Context
Vision 2030 program offices and PIF-portfolio companies report ROI on key initiatives as part of their performance management dashboards. Saudi SMEs use ROI to evaluate marketing campaigns, equipment purchases, and software investments before committing capital.
Example
A SAR 200,000 marketing campaign generates SAR 300,000 of net additional profit. ROI = (300,000 − 200,000) ÷ 200,000 = 50%.