The actual profit or loss is measured through the returns achieved from particular investments. Let the investment be in Risky securities ( Stocks, Gold, Oil, commodities , ETF, etc..,) or Risk free securities ( Bonds, fixed deposits, etc..,) . The above shown formula is used to understand the level or rate of return achieved. Positive RR shows there is a profit and negative RR refers to a loss.
Example:
Lets assume, Sulthan bought 10 shares of company A @ Rs100 per share on 28.10.2016. On 1.11.2016 the share price of company increase to Rs106. In this example P0 is 100 and P1 is 106. Substituting this in the above RR formula we get RR is 0.06 . When multiplied by 100 we get 6 which means Sulthan earns 6% profit from his investment.
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