What is the term for a metric that evaluates the financial benefit of an investment compared to its cost?

Return on investment (ROI) is a key financial metric used to assess the profitability of an investment. It is calculated by comparing the net profit generated from the investment to its initial cost. This ratio expresses how much return is achieved for each dollar invested and is typically represented as a percentage.

The importance of ROI lies in its straightforwardness and relevance to decision-making. It provides a clear and quantifiable measure that helps investors and stakeholders understand the effectiveness of their investment efforts. A higher ROI indicates a more favorable investment outcome, thereby guiding individuals and organizations in their financial planning and resource allocation.

By focusing specifically on the relationship between the gains from an investment and its costs, ROI simplifies the evaluation process and makes it easier for decision-makers to compare different investment options, making it a crucial aspect of financial assessment in projects, including those related to AI.