What is the difference between NPV and ROI?

NPV or Net Profit Value shows the difference in the current value of cash inflows and that of the cash outflows over a particular period of time. NPV is used majorly to determine the portability of a projected business operation. On the other hand, the ROI or the Return on Investment is used majorly to determine the efficiency of investment by determining the ratio of the profit from an investment and cost of investment. When you have a high ROI, it indicates a profitable investment.

Net Profit Value does not actually determine whether an investment is profitable or not. It helps to know the number of cash inflows and outflows of an investment, and so that we can use it to predict a future investment. In contrast, ROI helps by letting you know the actual amount you are getting as profit from an investment; it might not actually be the right tool to predict a future investment.

NPV stands for Net Present Value. This term represents the difference between the present value of an investment and cash flow in the upcoming and the current value of the investment and any cash flow that may accrue in the future. It represents the net result of a multi-year investment. The return on investment is an equation that measures the efficiency of an investment and the cost of investments.

It is a number by which the investor is aware of the amount of cash flow. It does not look at gains and costs in the conventional sense, as it takes into consideration the discount percentage. ROI is a way to measure the amount of profit an investment stands because of its simplicity and versatility. If investment returns a negative ROI, or there are more lucrative opportunities using distinct ROI all together, then the investment should not be reflected at all.