Which metric is the profit on an investment over a period of time, expressed as a proportion of the original investment?

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The main idea being tested is how we measure what an investment earns relative to what was put in. This metric, the rate of return, expresses profit earned over a period as a proportion of the original investment. In practical terms, if you start with an amount and end up with more after a certain period, the return is the profit divided by the initial amount, often shown as a percentage. This lets you compare different investments on a like-for-like basis, because you’re looking at how efficiently each dollar of invested capital was turned into profit.

It’s also common to annualize the rate of return so you can compare investments with different time horizons. This concept is distinct from a cost-benefit ratio, which compares total benefits to total costs without tying the figure to the original outlay; from net present worth, which discounts cash flows to their present value; and from an investment tax credit, which is a tax incentive rather than a measure of return on investment.