What does 'return on investment' (ROI) measure?

Return on investment (ROI) is a financial metric used to evaluate the efficiency and profitability of an investment. It measures the amount of return relative to the investment's cost. By focusing on the efficiency of an investment, ROI allows investors and businesses to assess how effectively their capital is being utilized to generate profits.

A high ROI indicates that an investment has yielded a good return, while a low ROI may suggest that the investment is not performing well. This measure is particularly useful in comparing the profitability of different investments or projects, enabling decision-makers to determine where to allocate resources for maximum financial benefit.

In contrast, the other options focus on different aspects of investments. The total revenue generated is just one part of the ROI calculation, specifically the numerator, which does not capture the entire context of investment efficiency. The costs associated with an investment are important, but they are part of the ROI formula rather than defining what ROI measures. Similarly, the market value of the invested assets is a static measure and does not reflect the efficiency or profitability of the investment compared to its cost. Thus, ROI distinctly emphasizes the efficiency of investments, making it a vital tool for evaluating financial performance.