Return on Investment

Return on investment (ROI) is a profitability measure that calculates the profit on an investment as a percentage of the original cost.  In other words, it measures how much money was made on an investment as a percentage of the purchase price.  ROI allows investors to determine the efficiency of each dollar invested in a project.

For example, an investment in a stock or an index fund can be compared to one in equipment.  It doesn’t matter what type of investment, because the ROI calculation only looks at the profits associated with the investment.

The same concept is applicable to education.  Consider the cost of a college degree in the context of future earning potential.  While there are obvious benefits to education in general, it is equally, or perhaps more important, to match the cost of additional education with projected future compensation.  It does not make economic sense to incur significant debt without a corresponding income stream.  ROI!

All comments and or suggestions are welcome.

Walter J. Kirchberger, CFA