ROI Calculator
Calculate your return on investment and annualized ROI
About ROI Calculation
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. It compares the net profit or loss of an investment relative to its cost.
ROI Formula:
Annualized ROI Formula:
where n = number of years
A positive ROI indicates a profitable investment, while a negative ROI means the investment lost value. Annualized ROI allows you to compare investments of different time periods.
Return on Investment (ROI) Calculator
Investing wisely requires understanding how much profit or loss your investments generate over time. A Return on Investment (ROI) calculator helps you determine the profitability of your investments by calculating the percentage change in value from the initial investment to the final value.
You can also check out other useful financial tools like the Savings Calculators and Investment Calculator to plan and optimize your finances.
What is ROI?
ROI, or return on investment, is a financial metric that shows how much profit or loss an investment generates relative to its initial cost. The net final value of an investment includes earnings from interest, dividends, and capital gains, minus any associated costs such as commissions or fees.
A positive ROI indicates a profitable investment, while a negative ROI means the investment is worth less than its original value.
How to Calculate Return on Investment (ROI)
The basic formula for ROI is:
ROI = (Net Final Value – Initial Investment) ÷ Initial Investment × 100
Where:
- Net Final Value (net fv): Final value of the investment including income, minus investment costs
- Initial Investment (iv): Amount you initially invested
ROI is one of the simplest ways to measure investment performance. It allows investors to compare different investment opportunities and make informed decisions.
For example, investing $1,000 in a fund that grows to $1,150 in one year yields a 15% ROI, while $600 invested in a fund that grows to $800 over three years gives a 10.064% annualized ROI.
Why Time Matters: Annualized ROI
ROI alone does not account for the period an investment is held. To compare investments of different lengths, you need the annualized ROI, which converts ROI into a yearly rate of return.
The formula for Annualized ROI is:
Annualized ROI = [(Net Final Value ÷ Initial Investment)^(1 ÷ n)] – 1 × 100
Where:
- n = Number of years the investment is held (in decimal form)
Annualizing ROI assumes that the investment grows at a consistent rate each year, allowing fair comparison between short-term and long-term investments.
For example, a $600 investment growing to $800 over 3 years results in an annualized ROI of 10.064%, which is lower than a $1,000 investment growing to $1,150 in one year (15% ROI). This shows why considering the investment duration is crucial for evaluating profitability.
You can also explore tools like the Investment Inflation Calculator and CAGR Calculator to see how inflation and compounded growth impact your ROI over time.
ROI Calculator: Key Benefits
Using a ROI calculator offers several advantages:
- Quick assessment of profitability: Instantly see whether an investment is making or losing money.
- Comparison across options: Evaluate multiple investments with different durations and amounts.
- Decision support: Helps determine if you should continue, reinvest, or withdraw an investment.
Practical Example
Imagine choosing between two investments:
- Investment A: $1,000 grows to $1,150 in 1 year.
- Investment B: $600 grows to $800 in 3 years.
- ROI of A: (1150 – 1000) ÷ 1000 × 100 = 15%
- Annualized ROI of B: [(800 ÷ 600)^(1 ÷ 3)] – 1 × 100 ≈ 10.064%
Even though Investment B yields a smaller initial capital outlay, Investment A is more profitable due to its higher ROI.
Tips for Maximizing ROI
- Factor in costs: Include fees, taxes, and commissions in net final value calculations.
- Account for inflation: Real ROI may be lower than nominal ROI if inflation is high. Use tools like the Future Value Investment Account Calculator for inflation-adjusted estimates.
- Compare timeframes: Annualized ROI allows fair comparison between investments held for different durations.
A Return on Investment (ROI) calculator is an essential tool for any investor seeking to understand the profitability of their investments. By calculating ROI and annualized ROI, you can compare options, assess performance, and make informed financial decisions. For deeper financial planning, explore related calculators like Rule of 72 Calculator and Retirement Savings Calculator to optimize your investments further.