‘Return on Investment’ is a critical profitability ratio. It is calculated as follows:
\[
\text{Return on Investment (ROI)} = \frac{\text{Net Profit}}{____________} \times 100
\]
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ROI measures profitability against all the money invested (equity + debt).
Think: Return on Investment (total capital).
Return on Investment (ROI) is a profitability metric assessing a company's efficiency in generating profits from its total invested capital. It is computed by dividing net profit by the total capital invested (comprising both equity and debt) and multiplying by 100 to yield a percentage.\[\text{ROI} = \frac{\text{Net Profit}}{\text{Total Capital Invested}} \times 100\] Using only Equity as the denominator omits debt, rendering it inaccurate. Using only Debt as the denominator fails to account for equity and the overall capital structure. Including Debt + Interest on Debt is erroneous because interest represents an expense, not capital.Consequently, the accurate denominator is (C) Total Capital Invested.
