The ratio of gains realized from an investment divided by the investment required.

Often abbreviated as ROI, the return on investment indicates how effective your investment has been over a period of time. For example, assume that you have bought a business for $200,000 in cash. At the end of your first year in business, after meeting all business expenses and paying yourself a reasonable salary, you realize the net profit of $50,000. Your return on investment then is

Most small business purchases require a combination of downpayment (equity) and financing (debt). In such cases, the return on investment is computed on the total capital used to buy the business.