What is the correct formula for calculating the return on investment (ROI) ratio?

The return on investment (ROI) ratio is a widely used financial metric that helps assess the efficiency or profitability of an investment relative to its cost. The correct formula for calculating ROI is typically defined as the net income generated from the investment divided by the total investment cost.

In this context, the formula presented aligns with the accepted definition in financial analysis, where net income represents the profit generated after all expenses have been deducted from total revenue. By comparing this profit to total assets, the formula effectively indicates how well the assets are being utilized to generate income.

The other alternatives do not reflect the accurate method of calculating ROI in a manner that conveys the performance of an investment. For instance, one option involves dividing total assets by net income, which does not provide a clear perspective on the investment's profitability relative to its costs. Similarly, using shareholders' equity instead of total assets or evaluating total revenue against total expenses deviates from the standard ROI calculation, as they focus on different aspects of financial performance rather than the investment's return specifically.

Therefore, the formula that uses net income divided by total assets accurately captures the essence of ROI, highlighting the relationship between profit generation and asset utilization.