Definition:

Investments refer to the allocation of resources, usually money, in order to generate income or profit. This can involve purchasing assets like stocks, bonds, real estate, or starting a business with the expectation of future returns.

Examples

1. Buying shares of a company in the stock market.
2. Purchasing a rental property to earn rental income.
3. Investing in government or corporate bonds for interest income.
4. Starting a small business with the aim of generating profit.

Formula:

There is no single formula for investments, as it encompasses various types of assets and strategies. However, a common formula used to evaluate investment performance is the Return on Investment (ROI):

ROI = (Net Profit / Cost of Investment) x 100

How to use the metric:

The ROI metric is used to assess the efficiency of an investment. A higher ROI indicates a more profitable investment. It helps investors compare the profitability of different investments and make informed decisions.

Limitations:

1. ROI does not account for the time value of money.
2. It may not consider all costs associated with an investment.
3. ROI can be misleading if not compared with similar investments or time periods.
4. It does not measure risk.

Applies to:

Investments apply broadly across various industries, including finance, real estate, technology, and manufacturing, where capital is deployed to generate returns.

Doesn't apply to:

Investments may not apply directly to industries that are non-profit or primarily service-oriented without a focus on capital growth, such as certain educational or charitable organizations, as their primary goal is not profit generation.

Summary:

Investments involve allocating resources with the expectation of generating income or profit. They can take various forms, such as stocks, bonds, or real estate. The ROI metric is commonly used to evaluate investment performance, though it has limitations like not accounting for risk or the time value of money. Investments are applicable across many industries but may not be directly relevant to non-profit sectors.