What is the purpose of calculating return on investment (ROI)?

The calculation of return on investment (ROI) serves the primary purpose of evaluating the efficiency of an investment. ROI measures the profitability of an investment relative to its cost, providing investors with a straightforward way to assess how well an investment has performed. By calculating ROI, individuals and businesses can compare the returns generated by different investments, allowing them to make informed decisions about where to allocate resources. This performance metric is critical for determining whether an investment is worthwhile and helps in guiding future investment strategy.

In contrast, other choices focus on different aspects of financial analysis. While analyzing market trends can be beneficial, it does not specifically relate to assessing individual investment performance. Assessing creditworthiness pertains to evaluating the likelihood of a borrower repaying loans, which is not the focus of ROI. Similarly, calculating the total cost of a transaction involves analyzing expenses rather than measuring the return generated by an investment. Thus, the efficiency of an investment is the core focus of ROI, making this the correct choice.