ROI – Return on Investment

What is the meaning / definition of ROI in the hospitality industry?

ROI stands for: Return on Investment

ROI is a profitability ratio used to evaluate the gain or loss generated on an investment. In other words, it indicates how much money was earned on an investment, expressed as a percentage of the purchasing price/ initial investment.

How to calculate ROI:

Formula: ROI = (investment revenue – investment cost) / (investment cost)

This formula is pretty simple and is adaptable to different kinds of investments such as marketing campaigns or hotel asset acquisitions. However, its flexibility has a downside; this ratio can be manipulated according to one’s perception. The use of the same inputs is essential, to have a good comparison.

Also note that this indicator does not take the time value of money into consideration.

See Also:

• IRR
• Feasibility Study
• NPV

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