ROI Calculator

What ROI is and why it matters

Return on investment (ROI) measures how much an investment earned relative to what it cost. It is the most common yardstick for comparing anything you put money into: shares, a rental property, new equipment for a business, a marketing campaign or a course that raises your salary. Because it is a percentage of the amount invested, it lets you compare a $1,000 bet with a $100,000 one on equal terms.

ROI formula and worked example

Net gain = final value − amount invested

ROI = net gain ÷ amount invested × 100

Example: you invest $10,000 and three years later it is worth $15,000. The net gain is 15,000 − 10,000 = $5,000, and ROI is 5,000 ÷ 10,000 = 50%. Your money grew by a multiple of 1.5.

To express that as a yearly rate, the annualized return (also called the compound annual growth rate, CAGR) is:

Annualized return = (final value ÷ amount invested)^{1 ÷ years} − 1

For the example: (15,000 ÷ 10,000)^1/3 − 1 = 1.5^0.3333 − 1 = 1.1447 − 1 = 14.47% per year. Check: $10,000 growing at 14.47% for three years is 10,000 × 1.1447 × 1.1447 × 1.1447 = $15,000.

Why the annualized return matters

Total ROI says nothing about time. A 50% return sounds equally good whether it took three years or ten, yet the yearly rate is very different. Spread over ten years, the same 50% gain is only 4.14% a year, about what a savings account might pay, with none of the risk. Always compare investments on an annualized basis:

The annualized rate is also what you need to project forward. Plug it into the compound interest calculator to see what the same growth rate would do to a larger sum or a longer period.

How to use this calculator

1. Enter the amount invested, including purchase fees, commissions and closing costs.
2. Enter the final value: the current market value, or the sale proceeds net of selling costs, plus any dividends, interest or rent you received along the way.
3. Give the holding period either as a number of years (decimals are allowed) or as the purchase and sale dates. With dates, the period is counted in days and divided by 365.25.
4. Read the net gain, total ROI and annualized return. If the final value is below what you invested, the figures are negative.

Limitations of ROI

• It ignores risk. A 14% return from a government bond and 14% from a single small-company share are not equivalent; the second could just as easily have been −40%.
• It ignores the timing of cash flows. ROI assumes one lump sum in and one lump sum out. If you added money over time or took withdrawals, use an internal rate of return (money-weighted return) instead.
• Fees and taxes. Management fees, trading costs and capital gains tax all reduce what you keep. Enter after-fee, after-tax figures for a realistic answer.
• Inflation. The result is a nominal return. Subtract inflation to see the change in purchasing power.
• Percentages hide scale. A 50% return on $200 is $100; on $200,000 it is $100,000. Look at the net gain as well as the percentage, and for simple interest without compounding see the simple interest calculator.