Return on investment is the simplest profitability ratio in finance and business. Because a 30% gain over one year is very different from 30% over ten years, the annualized figure (also called CAGR) is the fairer way to compare options.
How to use it
Enter the total amount invested, including fees, and the total returned, including dividends or income. Add the holding period to see the annualized return.
Limitations
ROI ignores risk and the timing of cash flows during the period. For projects with many inflows and outflows, use net present value or internal rate of return instead.
Inputs explained
| Field | What to enter |
|---|---|
| Amount invested | Amount in your currency |
| Amount returned | Amount in your currency |
| Holding period | Units: years, months |
What each result means
- Return on investment = ([Amount returned] – [Amount invested]) ÷ [Amount invested] × 100
- Net gain = [Amount returned] – [Amount invested]
Example values
How the main result changes when Amount returned changes and everything else stays at the example values above:
| Amount returned | Return on investment (%) |
|---|---|
| 5,250 | -34.38 |
| 7,875 | -1.56 |
| 10,500 | 31.25 |
| 13,125 | 64.06 |
| 15,750 | 96.88 |
| 21,000 | 162.5 |
Formula
ROI = (final value − cost) ÷ cost × 100Annualized ROI = ((final ÷ cost)^(1/years) − 1) × 100Worked example
Invest 8,000 and receive 10,500 after 3 years.
ROI = (10,500 − 8,000) ÷ 8,000 × 100 = 31.25%.
Annualized = (10,500 ÷ 8,000)^(1/3) − 1 ≈ 9.49% per year.
Key terms
- Net gain
- Final value minus total cost.
- Annualized return (CAGR)
- The constant yearly rate that grows the cost into the final value.
- Holding period
- How long the investment was held.
Frequently asked questions
What counts as a good ROI?
It depends on risk and time. Compare the annualized figure with alternatives such as index funds or savings rates.
Can ROI be negative?
Yes. A negative ROI means you lost money.
Should I include fees?
Yes. Add fees to the cost and subtract them from the return for an honest figure.
What formula does the ROI Calculator use?
ROI = (final value − cost) ÷ cost × 100.
Can I work backwards from the result?
Yes. Type the result you want into Return on investment and the calculator finds the matching amount returned.