What does return on investment (ROI) measure?

Return on investment (ROI) is a financial metric that assesses the efficiency of an investment by comparing the net profit generated from that investment to its initial cost. It is expressed as a percentage, reflecting how much return a business earns relative to what it spends. Knowing how effectively an investment yields profit is crucial for businesses, as it helps in decision-making regarding where to allocate resources for maximum benefit.

Evaluating the ROI allows firms to determine which investments are more beneficial. A high ROI indicates that the investment is generating substantial returns compared to its costs, signaling good financial performance and strategic investment choices.

In contrast, the other options focus on different aspects of a business's financial performance but do not accurately represent ROI. Total revenue from sales reflects overall sales performance without considering costs or profitability. The percentage increase in market share measures competitive positioning but does not account for the financial return on investments made. Financial health of a company is a broader concept that encompasses various metrics beyond just ROI, including liquidity, solvency, and profitability. Hence, option B accurately captures the essence of what ROI measures.