Certified Nurse Manager and Leader (CNML) Practice Test

How is ROI calculated?

1. (Benefit$ - Cost$) / Benefit$

2. (Cost$ + Benefit$) / Cost$

3. (Cost$ - Benefit$) / Cost$

4. (Cost$ x Benefit$) / Cost$

The correct answer is: (Cost$ - Benefit$) / Cost$

Return on Investment (ROI) is a financial metric used to evaluate the efficiency of an investment or compare the efficiency of several investments. The correct calculation for ROI is typically expressed as the net return (which is the benefit received minus the cost of the investment) divided by the cost of the investment. Therefore, the correct calculation is: ROI = (Benefit - Cost) / Cost. This formula provides insight into the return relative to the cost, allowing stakeholders to assess how much return is generated for each dollar spent. If the resulting figure is positive, it indicates a profitable investment, while a negative figure suggests a loss. The chosen calculation, involving the difference between the cost and benefit, does not align with how ROI is quantitatively assessed. Instead, the characteristics of the correct formula help organizations make informed financial decisions about where to allocate resources effectively for maximum return. Understanding this provides a foundation for evaluating various financial decisions across healthcare management and nursing leadership.