Return on Investment (ROI) Formula: How to Measure Profitability

Return on Investment evaluates the financial gain or loss generated on an investment relative to its cost: $$\text{ROI} = \left(\frac{\text{Net Profit}}{\text{Cost of Investment}}\right) \times 100 = \left(\frac{\text{Current Value} - \text{Initial Cost}}{\text{Initial Cost}}\right) \times 100$$ A positive ROI indicates a net profitable outcome, whereas a negative ROI denotes a net loss.

To compare investments held across different time horizons, calculate Annualized ROI: $$\text{Annualized ROI} = \left[(1 + \text{ROI})^{1/t} - 1\right] \times 100$$ Where $t$ represents holding duration in years.