How do you calculate the rate of return on investment (ROI)?

The rate of return on investment (ROI) is a crucial financial metric used to evaluate the efficiency of an investment. To calculate ROI, you take the net profit generated by the investment, divide it by the cost of the investment, and then multiply by 100 to express it as a percentage. This formula provides a clear indication of how much profit is made for each dollar invested, thus offering insight into the overall performance of the investment.

In this context, the correct formula highlights that the relationship between net profit and cost of investment is key to understanding how effectively the investment has performed. The multiplication by 100 is necessary to convert the figure into a percentage format, making it easier to interpret and compare against other investments or benchmarks.

Other provided formulas do not accurately describe how to calculate ROI: one option suggests dividing the cost of investment by net profit, which does not properly reflect the profit made relative to the investment; another option subtracts the cost of investment from net profit before dividing, which is not aligned with the standard ROI formula; and the last option incorrectly frames the relationship by reversing the roles of profit and investment.

Overall, option C correctly captures the essence of ROI calculation, making it easier for investors to gauge the success of their investments.