The Return On Investment is 6.3%
Return On Investment = Net Operating profit after tax / Invested Capital
Net Operating profit after tax = Operating Income ( 1 - tax rate) = 420000 * (1-0.4) = 252000
Return On Investment = 252000 / 4000000 = 6.3%
Return on investment is a simple ratio that divides the net profit (or loss) from an investment by its cost. Because it is expressed as a percentage, you can compare the effectiveness or profitability of different investment choices.
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