How is ROI calculated?

The calculation of Return on Investment (ROI) is crucial in evaluating the efficiency of an investment. It represents the ratio of net profit relative to the cost of the investment, reflecting how much profit is earned for every dollar invested. The formula for ROI is formulated as (Net Profit / Cost of Investment) x 100, which allows investors to express their profit as a percentage. This simple yet effective metric helps in comparing the profitability of different investments and making informed financial decisions.

While other options touch upon elements of financial analysis, they do not accurately represent the calculation of ROI. For instance, net profit divided by total revenue does not provide a measure of investment efficiency, but rather a margin ratio. Similarly, total investments divided by total profit does not correctly reflect the investment's return and gross profit minus cost of goods sold measures profitability without context to the investment made. Thus, identifying the correct formula as (Net Profit / Cost of Investment) x 100 is essential for understanding how effectively capital is utilized in generating profit.