What type of analysis is often used to evaluate the efficiency of an investment?

Return on investment (ROI) is a widely used measure to evaluate the efficiency of an investment because it quantifies the gain or loss generated relative to the investment's cost. By calculating ROI, investors can assess how effectively their money is being utilized to generate profits. The formula for ROI is typically given by the net profit from the investment divided by the initial cost of the investment, expressed as a percentage.

This metric allows for easy comparison between different investments, as it provides a standardized way to assess performance regardless of the type of investment or the amount of capital involved. Thus, ROI serves as a vital tool for both individual and institutional investors, helping them make informed decisions on capital allocation.

Cost-benefit analysis assesses the overall benefits against costs but does not solely focus on the efficiency of investments. Market analysis examines market conditions, trends, and dynamics, which can inform investment decisions but is not specifically designed to evaluate investment efficiency. SWOT analysis assesses strengths, weaknesses, opportunities, and threats related to a project or investment but does not provide a direct measure of investment performance like ROI does.