Whenever we purchase or invest in something, we expect to gain something from it. A return on investment (ROI) is the amount gained or lost on an investment.
A business invests any time it makes a purchase — from materials to equipment to human resources. When you spend capital on something, there is always an expectation of a return. Usually, the return comes as added value or more capital brought into your business.
To determine an asset's ROI, divide the gains or losses generated by its cost to you. Investors will want to know the expected ROI of your product or service so they can decide if it’s worth the investment.