How is Return on Investment (ROI) calculated?

Return on Investment (ROI) is a key performance metric used to evaluate the financial return of an investment relative to its cost. The correct calculation for ROI is achieved by taking the net benefits generated from the investment, multiplying it by 100, and then dividing that product by the total cost incurred for the change. This formula provides a percentage that reflects the degree of return generated for each dollar spent.

The rationale behind multiplying by 100 is to convert the ROI into a percentage, making it easier to interpret and compare against other investments or benchmarks. By focusing on net benefits, which represent the actual gains realized from the investment after costs, this approach underscores the effectiveness and profitability of the investment.

In contrast to the other options, which either misrepresent the calculation or do not provide the necessary components to derive a proper ROI, this formula offers a clear and standardized way of measuring the financial success of business initiatives.