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What is a return?
A return is the sum of money gained or lost on an investment compared to the invested amount. It is usually stated as a percentage of the amount invested. For example, a $25 gain on a $100 investment would have a 25 percent return.
Return in this sense is synonymous with profit, yield, capital gain, interest, dividend or revenue produced by an investment. It’s important to remember that return can refer to the loss on an investment, or so-called negative returns.
A return can include changes in value as well as income. Looking at annual return percentages allows someone to compare the performance of various investments that are held for different periods of time.
Generally, return can be measured in three ways: return on investment (ROI), return on equity (ROE) and return on assets (ROA). All three are calculated in similar ways, however they are used to understand a return for varying circumstances.
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Brian invested $500,000 to buy a plot of land and decided to sell it for $600,000 a year later. His return on investment is 20 percent. He got that percentage by dividing his profit ($100,000), by his original investment ($500,000).