How is the return on investment (ROI) calculated?

The calculation of return on investment (ROI) is fundamentally about measuring the profitability of an investment relative to its cost, which is precisely what the correct answer describes. ROI is determined by taking the net profit generated from the investment, which is the total revenue minus expenses, and then dividing that figure by the initial investment cost. This method provides a straightforward percentage that can be easily compared across different investments, helping investors understand the efficiency and performance of their investment choices.

This approach is crucial for decision-making as it delivers a clear, quantifiable measure of investment success. A higher ROI indicates that the investment has generated significant profit relative to its cost, making it more attractive to potential investors. This calculation also aids in comparing different investments, allowing for informed decisions by illustrating which ventures yield the best financial returns relative to the amount of capital allocated.

The other options either do not align with the concept of ROI or pertain to unrelated financial metrics. For instance, simply adding all expenses does not reflect profitability; multiplying total revenue by years does not take into account costs or profits; and comparing profit with national economic growth lacks a direct means of assessing an individual investment's effectiveness. Thus, the correct formula encapsulates the essence of ROI as a metric for evaluating investment performance.