What does return on investment (ROI) measure?

Return on investment (ROI) is a key performance measure that evaluates the efficiency of an investment by comparing the return generated relative to its cost. This metric allows investors to assess how effectively their capital has been utilized, enabling them to make informed decisions about where to allocate resources in the future.

By calculating ROI, investors can understand the profitability of various investments and compare them against each other, taking into account both gains and the initial investment costs. This focus on efficiency is essential for evaluating potential projects, investments, or expenditures, leading to better strategic decisions.

The other options address different concepts that do not capture the specific function of ROI. For instance, total revenue generated pertains to the gross income before expenses are deducted, market value relates to the current worth of an asset in the marketplace, and volatility indicates the degree of variation in an investment's returns. None of these alternatives directly measures the relationship between an investment's return and its cost, which is the essence of ROI.