The Rate of Return (ROR) is a fundamental financial metric used to measure the profit or loss of an investment over a specific period. It is expressed as a percentage of the investment's initial cost. Whether you are tracking stocks, real estate, or business equipment, knowing your ROR is essential for evaluating performance.
The Simple Rate of Return Formula
To calculate the basic percentage growth of an investment, use this formula:
ROR = [(Final Value – Initial Cost) / Initial Cost] x 100
Annualized Return (CAGR)
While the total ROR tells you how much you made in total, the Compound Annual Growth Rate (CAGR) explains how much you earned on average each year. This is crucial for comparing investments that lasted for different lengths of time. A 50% return over 10 years is very different from a 50% return over 2 years.
Calculation Example
Imagine you purchased a collection of vintage assets for $10,000. Five years later, you sell them for $15,000.
Total Profit: $5,000
Total Rate of Return: 50% ($5,000 / $10,000)
Annualized Return: 8.45% (The smoothed annual growth rate over 5 years)
Why ROR Matters
Investors use ROR to determine if the risk of an investment is worth the potential reward. By calculating the annualized rate, you can compare a high-yield savings account against the stock market or a real estate venture on an "apples-to-apples" basis.
function calculateROR() {
var initial = parseFloat(document.getElementById('initialCost').value);
var final = parseFloat(document.getElementById('finalValue').value);
var years = parseFloat(document.getElementById('timePeriod').value);
var resultDiv = document.getElementById('ror-results');
var totalRORDisplay = document.getElementById('totalROR');
var annualizedRORDisplay = document.getElementById('annualizedROR');
var totalProfitDisplay = document.getElementById('totalProfit');
if (isNaN(initial) || isNaN(final) || initial 0) {
annualizedROR = (Math.pow((final / initial), (1 / years)) – 1) * 100;
}
// Display Results
resultDiv.style.display = 'block';
totalRORDisplay.innerText = totalROR.toFixed(2) + "%";
totalRORDisplay.style.color = totalROR >= 0 ? "#2e7d32" : "#c62828";
if (!isNaN(years) && years > 0) {
annualizedRORDisplay.innerText = annualizedROR.toFixed(2) + "%";
} else {
annualizedRORDisplay.innerText = "N/A";
}
totalProfitDisplay.innerText = "$" + profit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
totalProfitDisplay.style.color = profit >= 0 ? "#333" : "#c62828";
// Smooth scroll to results
resultDiv.scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}