Return on investment (ROI) is calculated by taking the net profit (or gain) from an investment, dividing it by the initial cost of the investment, and then multiplying the result by 100 to express it as a percentage. The basic formula is:

ROI=(Net ProfitCost of Investment)×100ROI=\left(\frac{\text{Net Profit}}{\text{Cost of Investment}}\right)\times 100ROI=(Cost of InvestmentNet Profit​)×100

Alternatively, it can be expressed as:

ROI=(Final Value of Investment−Initial InvestmentInitial Investment)×100ROI=\left(\frac{\text{Final Value of Investment}-\text{Initial Investment}}{\text{Initial Investment}}\right)\times 100ROI=(Initial InvestmentFinal Value of Investment−Initial Investment​)×100

Where "Net Profit" is the difference between what you earned (including income like dividends) and what you invested initially (including expenses). This metric helps to understand how much return the investment has generated relative to its cost. For example, if you invest $10,000 and the investment grows to $12,500, receiving $300 in additional income during the period, ROI is:

ROI=12,500+300−10,00010,000×100=28%ROI=\frac{12,500+300-10,000}{10,000}\times 100=28%ROI=10,00012,500+300−10,000​×100=28%

This means you earned a 28% return on your investment.