Calculate Simple Rate of Return

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Simple Rate of Return Calculator

The Simple Rate of Return (SRR) is a fundamental metric used to evaluate the profitability of an investment over a specific period. It is calculated by dividing the net profit from an investment by the initial cost of the investment and expressing the result as a percentage. This provides a clear and concise way to understand how much an investment has grown (or shrunk) relative to its initial outlay, without considering the time value of money or compounding effects.

function calculateSRR() { var initialInvestment = parseFloat(document.getElementById("initialInvestment").value); var finalInvestmentValue = parseFloat(document.getElementById("finalInvestmentValue").value); var timePeriod = parseFloat(document.getElementById("timePeriod").value); var resultDiv = document.getElementById("result"); if (isNaN(initialInvestment) || isNaN(finalInvestmentValue) || isNaN(timePeriod) || initialInvestment <= 0 || timePeriod <= 0) { resultDiv.innerHTML = "Please enter valid positive numbers for all fields."; return; } var profit = finalInvestmentValue – initialInvestment; var rateOfReturn = (profit / initialInvestment) * 100; resultDiv.innerHTML = "

Results:

" + "Net Profit: " + profit.toFixed(2) + "" + "Simple Rate of Return: " + rateOfReturn.toFixed(2) + "%" + "Annualized Rate of Return: " + (rateOfReturn / timePeriod).toFixed(2) + "%"; }

Understanding Simple Rate of Return

The Simple Rate of Return (SRR) is a straightforward method to gauge investment performance. It's calculated using the following formula:

SRR = ((Final Investment Value – Initial Investment Cost) / Initial Investment Cost) * 100

Where:

  • Initial Investment Cost: The total amount of money initially spent to acquire the investment.
  • Final Investment Value: The current or selling price of the investment.
  • Net Profit: The difference between the final value and the initial cost.

Often, investors also want to understand the performance on an annualized basis. This is achieved by dividing the total Simple Rate of Return by the number of years the investment was held:

Annualized Rate of Return = Simple Rate of Return / Time Period (in years)

Example Calculation:

Let's say you invested $10,000 in a stock (Initial Investment Cost). After 3 years, the stock is worth $15,000 (Final Investment Value).

  • Initial Investment Cost = $10,000
  • Final Investment Value = $15,000
  • Time Period = 3 years

First, calculate the Net Profit:

$15,000 (Final Value) – $10,000 (Initial Cost) = $5,000 (Net Profit)

Next, calculate the Simple Rate of Return:

($5,000 (Net Profit) / $10,000 (Initial Cost)) * 100 = 50%

Finally, calculate the Annualized Rate of Return:

50% (SRR) / 3 years = 16.67% (Annualized Rate of Return)

This means your investment grew by 50% over three years, or an average of 16.67% per year.

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