To determine the ROI of an investment, which value must be calculated first?

To determine the ROI (Return on Investment) of an investment, calculating the average net benefit first is crucial. ROI is commonly defined as the ratio of net profit to the total cost of the investment and is expressed as a percentage. The average net benefit represents the overall gain or benefit from the investment after accounting for costs, making it necessary to establish this figure before moving on to other calculations, such as ROI itself.

The average net benefit provides a foundational figure that reflects the financial return generated from the investment over a specific period, helping investors assess the effectiveness and profitability of the venture. Once the average net benefit is determined, it can be used to compute the ROI by comparing this benefit with the initial and ongoing costs associated with the investment.

Other values like net present value (NPV), present value (PV), and internal rate of return (IRR) are important financial metrics used for evaluating investments, but they depend on knowing the net benefits or cash flows generated by the investment first. Without understanding the average net benefit, it becomes difficult to accurately analyze the investment's performance or to contextualize it within the calculations of NPV, PV, or IRR.