ROI or Return on Investment is a financial metric used to evaluate the profitability of the investment. The ROI formula is used to determine the ratio of gained or lost money relative to the amount invested. The formula for ROI is simple, it is the net profit (minus expenses) divided by the cost of the investment. The resulting figure is expressed as a percentage. For example, if an investment with a cost of $1,000 yields a profit of $1,200, the net profit is $200. Dividing $200 by $1,000 gives an ROI of 20%. A higher ROI indicates better profitability, while a lower ROI indicates a lower profit margin. The ROI formula is one of the most commonly used financial ratios by investors, entrepreneurs, and financial analysts to analyze whether a potential investment is worth pursuing or not. This helps investors to make informed decisions and optimize investments for maximum returns.