Rate of Return (RoR) Calculator
Understanding Rate of Return (RoR)
The Rate of Return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. By calculating the RoR, you can measure the efficiency of an investment and compare the performance of different assets regardless of their initial scale.
The Rate of Return Formula
To determine the percentage growth of your capital, the following formula is used:
RoR = [(Current Value + Income Received – Initial Cost) / Initial Cost] × 100
Components of the Calculation
- Initial Investment: The total amount of money you originally put into the asset.
- Current/Final Value: The market value of the asset at the end of the period or its current selling price.
- Income Received: Any additional cash flow generated by the investment, such as stock dividends, bond interest, or rental income.
Example Calculation
Scenario: You purchased shares for 1,000. Over one year, the share price increased to 1,150, and you received 50 in dividends.
- Initial Cost: 1,000
- Final Value: 1,150
- Income: 50
- Total Gain: (1,150 + 50) – 1,000 = 200
- Rate of Return: (200 / 1,000) × 100 = 20%
Why Monitoring RoR Matters
Whether you are investing in stocks, real estate, or a private business, understanding your rate of return allows you to see if your money is working effectively. It helps in making informed decisions about whether to hold an asset or reallocate your capital to higher-performing opportunities.