What is the formula for determining a return on investment (ROI)?

• A. ROl = (Net profit + Cost of investment) x 100
• B. ROI = (Net profit / Cost of investment) / 100
• C. ROI = (Net profit - Cost of investment) x 100
• D. ROI = (Net profit / Cost of investment) x 100

Answer: (D)

ROI measures how effectively you turn invested money into profit, expressed as a percentage. The best formula compares the net profit to the amount invested, then converts that ratio to a percent. Net profit is what you earn after subtracting all costs from revenue, and the cost of investment is the initial amount put into the project. Multiply by 100 to express as a percentage.

For example, if you invest $1,000 and generate a net profit of $200, ROI = (200 / 1000) x 100 = 20%.

The other options don’t provide a proper ratio of profit to cost: adding costs to profit, dividing by cost and then by 100, or subtracting costs from profit all fail to express the return per dollar invested.