ROI Calculator
Calculate your Return on Investment and visualize your financial gains
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ROI Analysis
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Annualized ROI
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What is ROI?
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment.
ROI Formula:
ROI = ((Return - Investment) / Investment) × 100%
What is Return on Investment (ROI)?
If you’ve ever wondered, “Was this investment worth it?” then you need to understand Return on Investment (ROI). ROI is a fundamental financial metric used to evaluate the efficiency and profitability of an investment. It compares the gain or loss from an investment relative to its cost.
In simple terms, ROI tells you what you got back for what you put in. It’s a universal tool used by investors analyzing stocks, marketers measuring campaign success, and business owners evaluating new equipment.
How to Calculate ROI: The Formula Explained
The basic ROI formula is straightforward. It’s designed to give you a quick percentage that shows the return relative to the cost.
ROI = ((Net Return / Cost of Investment) × 100%
Net Return: The total gain from the investment minus the cost of the investment.
Cost of Investment: The total amount of money initially invested.
Real-World ROI Calculation Example
Let’s say you are a real estate investor.
You purchase a house for $250,000 (your Cost of Investment).
After repairs and holding costs, you spend an additional $25,000.
Your Total Investment Cost is $275,000.
You then sell the property for $350,000 (your Total Gain).
First, calculate your Net Return:
Net Return = Total Gain – Total Investment Cost
Net Return = $350,000 –
275,000=∗∗275,000=
75,000
Now, plug into the ROI formula:
ROI = ($75,000 / $275,000) × 100%
ROI = 27.27%
This means your return on investment was 27.27%. A positive ROI indicates a profitable investment.
The Limitation of Basic ROI: Introducing Annualized ROI
The standard ROI formula has one key weakness: it ignores time. A 27% return is great, but is it better if it was achieved in one year versus five years? Absolutely.
This is where Annualized ROI becomes critical. It calculates the geometric average return generated each year over a given time period, providing a standardized, yearly rate of return that allows you to compare investments of different durations fairly.
Annualized ROI Formula:
Annualized ROI = (((1 + (BasicROI/100))^(1/years)) – 1) * 100
Using our example above, let’s calculate the Annualized ROI if it took 3 years to sell the property.
First, convert the basic ROI to a decimal: 1 + (0.2727) = 1.2727
Raise it to the power of 1/3 (for 3 years): 1.2727^(1/3) ≈ 1.0835
Subtract 1: 1.0835 – 1 = 0.0835
Multiply by 100: 0.0835 * 100 = 8.35%
While the raw ROI was 27.27%, the Annualized ROI is approximately 8.35% per year. This gives you a much clearer picture of the investment’s performance compared to, say, a stock market index fund.
How to Use Our Free ROI Calculator Tool
Our interactive ROI Calculator does all the complex math for you instantly.
Enter Amount Invested: Input the total amount of money you spent initially (e.g., purchase price, fees, marketing budget, renovation costs).
Enter Amount Returned: Input the total amount of money you received or the final value of the investment (e.g., sale price, revenue generated).
Enter Investment Time: Choose to input a date range or a specific length in years.
Click “Calculate”: Our tool will instantly compute and display your Investment Gain, ROI, and Annualized ROI, along with a helpful visual chart.