What is ROI - Return on Investment?

The video tutorial explains the concept of Return on Investment (ROI), a key measure in project management and finance. It details how ROI is calculated as the ratio of net income to total cost, typically expressed as a percentage. A positive ROI indicates a profitable investment, while a negative ROI suggests a loss. The tutorial also highlights the limitations of ROI, such as its inability to account for the timing of costs and benefits, and introduces the discounted cash flow method as an alternative. Despite its limitations, ROI is presented as a simple and effective measure for evaluating smaller projects.

What makes ROI a popular measure among finance professionals?

• It is a complex calculation.

• It is widely used in the public sector.

• It is a simple and robust measure.

• It is only applicable to large projects.

How is ROI typically expressed?

• As a percentage

• As a ratio

• As a decimal

• As a fraction

What does an ROI percentage greater than 100% indicate?

• A negative return on investment

• A break-even point

• A loss in investment

• A positive return on investment

Which of the following is a limitation of ROI?

• It considers non-financial benefits.

• It accounts for the time value of money.

• It is only applicable to short-term projects.

• It does not account for the timing of costs and benefits.

What alternative methodology is suggested for evaluating long-term projects?

• Simple Interest Calculation

• Gross Profit Margin

• Net Income Analysis

• Discounted Cash Flow