What is the formula for the investment gain ratio?

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Multiple Choice

What is the formula for the investment gain ratio?

Measuring how much net gain is earned per unit of investable assets is the idea here. The “net” part matters because you want to reflect gains after losses, giving a true picture of performance. The denominator should be the assets actually available for investment, not every asset on the balance sheet, so total investable assets is the correct base. So the formula is net investment gain divided by total investable assets. Using just investment gain ignores losses, which overstates performance. Using net investment loss would give a negative or misleading result if there’s a gain. Using total assets as the denominator would mix in assets that aren’t investable, distorting the ratio.

Measuring how much net gain is earned per unit of investable assets is the idea here. The “net” part matters because you want to reflect gains after losses, giving a true picture of performance. The denominator should be the assets actually available for investment, not every asset on the balance sheet, so total investable assets is the correct base.

So the formula is net investment gain divided by total investable assets. Using just investment gain ignores losses, which overstates performance. Using net investment loss would give a negative or misleading result if there’s a gain. Using total assets as the denominator would mix in assets that aren’t investable, distorting the ratio.

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