What is the formula for calculating the expected return on investment (ROI)?

The formula for calculating the expected return on investment (ROI) is indeed given by (Net Profit / Cost of Investment) x 100. This measure is important in finance as it allows investors and financial advisors to evaluate the efficiency of an investment or compare the efficiencies of several different investments.

Net profit represents the amount of money gained from the investment after all expenses have been deducted, while the cost of investment refers to the total amount invested. By dividing net profit by the cost of investment, one can determine how much return was earned for each dollar invested, making it a straightforward and effective way to assess investment performance. Multiplying the result by 100 converts the decimal into a percentage, which is a standard way to express ROI, making it easier for comparisons.

For example, if you invested $100 and earned a net profit of $20, your ROI would be (20/100) x 100 = 20%, indicating a 20% return on your investment. This percentage helps investors understand the profitability of their investments relative to the initial amounts put at risk.