return on investment calculation formula

Return on investment (ROI) is a financial performance measure that is used to evaluate the efficiency or profitability of an investment. It is calculated by dividing the net profit from the investment by the initial cost of the investment, and then multiplying that result by 100 to express it as a percentage. The formula for calculating ROI is: ROI = (Net Profit / Cost of Investment) x 100 Where: - Net Profit is the total earnings or income generated from the investment - Cost of Investment is the total amount of money invested in the project or asset For example, if an investor purchases a stock for $1,000 and sells it for $1,200, the net profit would be $200. Therefore, the ROI would be: ROI = ($200 / $1,000) x 100 = 20% This means that the investor earned a 20% return on their investment. It is important to note that ROI does not take into account the time value of money, and does not consider the risk associated with the investment. Therefore, it should be used in conjunction with other financial metrics to make informed investment decisions. Additionally, different industries and investment strategies may have different interpretations of ROI, so it is important to consider the context when using this metric.