How do you calculate ROI?

The calculation of Return on Investment (ROI) is essential for assessing the profitability of an investment. The correct method to calculate ROI is by taking the net profit generated by the investment, dividing it by the cost of the investment itself, and then multiplying the result by 100 to express it as a percentage. This formula provides a clear view of how effectively the investment is generating profits relative to its cost.

Understanding ROI is particularly important for investors and businesses as it offers a straightforward way to evaluate the efficiency of an investment in generating returns. This metric helps in comparing different investment opportunities or assessing the performance of various projects.

Other methods presented in the options do not align with the traditional definition of ROI: one focuses on gross revenue and expenses without accounting for the profit margin, another relates to equity and total assets, which pertains to different financial ratios, and one calculates cash flow against liabilities, which is not a measure of profitability relating to investment returns.