The earning power of assets measured as the ratio of the income (revenue less cost) to the average investment in or cost of an project or product. Expressed usually as a percentage, return on investment is a measure of profitability that indicates whether or not a business is using its resources in an efficient manner. For example, if the long-term return on investment of a business is lower than its cost-of-capital, then the business will be better off by liquidating its assets and depositing the proceeds in a bank. Also called rate of return, or yield.

« Back to Glossary Index