ROI (return on investment)

ROI (return on investment) is an indicator that shows how much a company has gained from an investment relative to its cost.

ROI is calculated by comparing the profit or savings generated by an investment with the amount spent on it. The result is expressed as a percentage:

ROI = (return from investment − cost of investment) / cost of investment × 100%

If a company spent PLN 1 million and the investment generated PLN 1.5 million in profit or savings over a given period, the ROI is 50%. A positive ROI means the investment has paid off, while a negative ROI means it has resulted in a loss.

ROI is often presented together with the payback period, meaning the time it takes for savings or profits to cover the cost of the investment. In practice, the phrase “return on investment within a few months” refers to the payback period.

ROI makes it possible to compare different investments and choose the one that will bring the company the greatest benefit relative to the money spent. For industrial investments, the benefits may come from higher output, lower product losses, reduced water, energy and chemical consumption, and shorter downtime, among other things.

Example: A sauce production plant is considering an automated spice dosing system costing PLN 400,000. Thanks to more accurate dosing, the plant uses fewer spices and rejects fewer batches that do not meet requirements. The savings amount to PLN 200,000 per year. The payback period is two years. After three years, the total savings amount to PLN 600,000, so the ROI after three years is (600,000 − 400,000) / 400,000 × 100% = 50%.