Calculate simple return, total profit, and annualized growth (CAGR).
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Total Profit/Loss:$0.00
Simple Rate of Return:0.00%
Annualized Return (CAGR):0.00%
Understanding the Formula to Calculate Rate of Return
The Rate of Return (RoR) is a fundamental metric used in finance to evaluate the performance of an investment. It measures the net gain or loss generated on an investment over a specific time period relative to the investment's initial cost. Understanding how to use the formula to calculate rate of return is essential for investors, business owners, and financial analysts to benchmark success and compare different assets.
The Basic Rate of Return Formula
The simplest way to calculate the rate of return involves finding the percentage change between the beginning value and the ending value, including any income generated (such as dividends or interest) during the holding period.
RoR = [(Current Value – Initial Value + Income) / Initial Value] × 100
Where:
Current Value: The value of the investment at the end of the period.
Initial Value: The original cost or starting value of the investment.
Income: Any cash flows received, such as dividends, interest payments, or rental income.
Example Calculation
Imagine you purchased stock for $1,000 (Initial Value). After two years, you sell the stock for $1,200 (Current Value). During the time you held the stock, you received $50 in dividends (Income).
Using the formula:
Calculate Total Gain: $1,200 – $1,000 + $50 = $250
Divide by Initial Cost: $250 / $1,000 = 0.25
Convert to Percentage: 0.25 × 100 = 25%
Your simple rate of return is 25%.
Annualized Return (CAGR)
While the simple rate of return tells you the total percentage growth, it does not account for the time period. A 25% return over 10 years is very different from a 25% return over 1 year. To compare investments held for different durations, we use the Compound Annual Growth Rate (CAGR).
CAGR = [(Ending Value / Beginning Value)^(1 / Number of Years)] – 1
This metric provides a smoothed annual rate, assuming profits were reinvested at the end of each year. This calculator automatically computes the annualized return if you input a holding period greater than zero.
Factors Affecting Rate of Return
Market Volatility: Fluctuations in market prices directly impact the Current Value.
Fees and Expenses: Transaction fees, management fees, and taxes reduce the net return.
Inflation: Real rate of return adjusts the nominal return for inflation to show purchasing power changes.
Dividends/Interest: Reinvesting income significantly boosts long-term returns through compounding.
function calculateRateOfReturn() {
// 1. Get input values strictly by ID
var initialStr = document.getElementById('initial_investment').value;
var finalStr = document.getElementById('final_value').value;
var dividendsStr = document.getElementById('dividends').value;
var periodStr = document.getElementById('holding_period').value;
// 2. Parse values and handle empty/defaults
var initialVal = parseFloat(initialStr);
var finalVal = parseFloat(finalStr);
var dividendsVal = dividendsStr === "" ? 0 : parseFloat(dividendsStr);
var yearsVal = periodStr === "" ? 0 : parseFloat(periodStr);
// 3. Validate Inputs
if (isNaN(initialVal) || isNaN(finalVal)) {
alert("Please enter valid numbers for Initial Investment and Ending Value.");
return;
}
if (initialVal 0
var annualizedRoR = 0;
var cagrDisplay = "N/A (Enter Years)";
if (!isNaN(yearsVal) && yearsVal > 0) {
// CAGR Formula: ( (Ending / Beginning) ^ (1/n) ) – 1
// Note: Use totalEndingValue to account for dividends in the growth
var growthRatio = totalEndingValue / initialVal;
// Handle negative growth for power functions carefully, though standard CAGR assumes positive base usually.
// If growthRatio is negative (total loss > initial investment), CAGR calc is complex/undefined in standard real numbers.
if (growthRatio > 0) {
var cagrDecimal = Math.pow(growthRatio, (1 / yearsVal)) – 1;
annualizedRoR = cagrDecimal * 100;
cagrDisplay = annualizedRoR.toFixed(2) + "%";
} else {
cagrDisplay = "-100%"; // Total loss
}
} else if (yearsVal === 0) {
cagrDisplay = "N/A (Enter Years)";
}
// 6. Display Results
document.getElementById('result_profit').innerHTML = "$" + totalProfit.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Color coding for profit/loss
var rorElement = document.getElementById('result_ror');
rorElement.innerHTML = simpleRoR.toFixed(2) + "%";
if (totalProfit >= 0) {
rorElement.style.color = "#27ae60"; // Green
document.getElementById('result_profit').style.color = "#27ae60";
} else {
rorElement.style.color = "#c0392b"; // Red
document.getElementById('result_profit').style.color = "#c0392b";
}
document.getElementById('result_cagr').innerHTML = cagrDisplay;
// Show results container
document.getElementById('ror_results').style.display = "block";
}
function resetRoRCalculator() {
document.getElementById('initial_investment').value = "";
document.getElementById('final_value').value = "";
document.getElementById('dividends').value = "";
document.getElementById('holding_period').value = "";
document.getElementById('ror_results').style.display = "none";
}