What is ROI?
Return on investment (ROI) measures how much an investment gained or lost relative to what it cost, as a percentage. The formula is (final value − initial investment) ÷ initial investment × 100. Put in 10,000, get back 14,000, and your ROI is 40%. Enter a number of years too and this calculator also gives the annualized return.
The formulas
The calculator takes an initial investment (greater than zero), a final value (zero or more) and, optionally, the number of years you held it.
- Net gain or loss = final value − initial investment
- ROI = net gain ÷ initial investment × 100
- Annualized ROI = ((final value ÷ initial investment) ^ (1 ÷ years) − 1) × 100
The annualized figure appears only when years is greater than zero and the final value is above zero. It is the compound annual growth rate (CAGR): the constant yearly rate that would grow the starting amount into the final amount over that time. Results are rounded to two decimal places.
Worked example
You invested 10,000 three years ago and it's now worth 14,000.
- Enter 10000 as the initial investment, 14000 as the final value and 3 as years.
- Net gain = 14,000 − 10,000 = 4,000.00.
- ROI = 4,000 ÷ 10,000 × 100 = 40.00%.
- Annualized ROI = (14,000 ÷ 10,000)^(1/3) − 1 = 1.4^(0.3333) − 1 = 11.87%.
Check: 10,000 × 1.1187 × 1.1187 × 1.1187 is about 14,000.
A loss works the same way. 5,000 that falls to 4,000 gives a net loss of −1,000.00 and an ROI of −20.00%.
Simple ROI vs annualized ROI
Simple ROI ignores time, which makes it hard to compare investments held for different periods. The same 100% return looks very different over 2 years and over 10:
| Start | End | Years | ROI | Annualized ROI |
|---|---|---|---|---|
| 10,000 | 20,000 | 2 | 100.00% | 41.42% |
| 10,000 | 20,000 | 10 | 100.00% | 7.18% |
| 10,000 | 14,000 | 3 | 40.00% | 11.87% |
| 10,000 | 10,500 | 0.5 | 5.00% | 10.25% |
For a gain held longer than a year, dividing ROI by the number of years gives a higher number than the annualized ROI, because it ignores compounding: 40% ÷ 3 is 13.33%, against the true 11.87%. The U.S. SEC's investor education site explains compound interest and how growth builds on earlier growth.
Getting an accurate ROI
- Count all of your costs in the initial investment. Purchase fees, commissions and any money you added later all belong here. For a business project, include setup costs and staff time, not just the purchase price.
- Count all of your returns in the final value. Add dividends, interest, rent or other income you received to the current value of the asset.
- Use the actual holding period for years, including fractions: 18 months is 1.5.
The calculator treats your investment as a single lump sum at the start. If you added or withdrew money along the way, the annualized figure is only an approximation. For regular monthly investing, the SIP calculator models contributions over time.
What the result doesn't capture:
- Taxes on gains, which depend on where you live and how long you held the investment.
- Inflation. A 5% yearly return in a year with 3% inflation is a much smaller gain in purchasing power.
- Risk. Two investments with the same ROI can have very different chances of losing money.
Related calculators
- Compound interest calculator: project growth forward from a rate instead of measuring it after the fact.
- SIP calculator: returns on regular monthly investments.
- Profit margin calculator: profit as a share of the selling price.
- Break-even calculator: how many sales a business needs to cover its fixed costs.
Results are for general information about past or hypothetical returns. They don't predict future performance and aren't financial advice.
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