Practicing Success

Target Exam

CUET

Subject

Business Studies

Chapter

Financial Management

Question:

A formula for the computation of Return on Investment (ROI) is ___________.

Options:

$ROI = \frac{Net \, Income}{Revenue}×100$

$ROI = \frac{EBIT}{Total \, Investments}×100$

$ROI = \frac{Net \, Revenue}{Total\, Income}×100$

$ROI = \frac{Net \, Income}{Total\, Income}×100$

Correct Answer:

$ROI = \frac{EBIT}{Total \, Investments}×100$

Explanation:

The correct answer is option (2) : $ROI = \frac{EBIT}{Total \, Investments}×100$

The correct formula for the computation of Return on Investment (ROI) is:

2. $ROI = \frac{EBIT}{Total \, Investments}×100$

In this formula, EBIT (Earnings Before Interest and Taxes) is divided by the Total Investments, and the result is multiplied by 100 to express ROI as a percentage. EBIT is used because it represents the earnings generated by an investment before accounting for interest and taxes. This formula is commonly used to assess the profitability of investments and to compare the returns from different investment opportunities.