Rate of Return Calculator
Simple: =(End_Value – Start_Value) / Start_Value
Annualized: =(End_Value / Start_Value)^(1/Years) – 1
How to Calculate the Rate of Return in Excel
Calculating the Rate of Return (RoR) is a fundamental skill for investors, business analysts, and anyone looking to track the performance of an asset over time. While the calculator above provides an instant answer, understanding how to perform these calculations in Microsoft Excel allows for the analysis of large datasets and portfolio tracking.
1. The Simple Rate of Return Formula
The simple rate of return measures the percentage growth or decline of an investment from its beginning to its end, disregarding the time period. This is often referred to as ROI (Return on Investment).
The Math:
$$ \text{Rate of Return} = \frac{\text{Ending Value} – \text{Initial Value}}{\text{Initial Value}} $$
Excel Syntax:
Assuming your Initial Value is in cell A2 and your Ending Value is in cell B2, the formula is:
=(B2-A2)/A2
Tip: After entering the formula, click the "%" button in the Home ribbon to format the result as a percentage.
2. Annualized Rate of Return (CAGR)
If you held an investment for several years, a simple return doesn't tell the whole story. A 20% return over 1 year is great; a 20% return over 10 years is poor. To standardize this, we use the Compound Annual Growth Rate (CAGR).
The Math:
$$ \text{CAGR} = \left( \frac{\text{Ending Value}}{\text{Initial Value}} \right)^{\frac{1}{\text{Years}}} – 1 $$
Excel Syntax:
Assuming Initial Value in A2, Ending Value in B2, and the Number of Years in C2:
=(B2/A2)^(1/C2)-1
3. Using Excel's Built-in RRI Function
Excel actually has a specific function dedicated to calculating the equivalent interest rate for the growth of an investment, called RRI.
- Formula:
=RRI(nper, pv, fv) - nper: The number of periods (years).
- pv: Present value (Initial Investment).
- fv: Future value (Ending Investment).
Example: If you invested $1,000 (A2) and it grew to $1,500 (B2) over 3 years (C2), you would type:
=RRI(C2, A2, B2)
Comparison Table: Simple vs. Annualized Return
| Scenario | Initial | Final | Years | Simple Return | Annualized (CAGR) |
|---|---|---|---|---|---|
| Quick Flip | $1,000 | $1,200 | 1 | 20.00% | 20.00% |
| Long Term Hold | $1,000 | $2,000 | 10 | 100.00% | 7.18% |
| Market Correction | $1,000 | $800 | 2 | -20.00% | -10.56% |
Frequently Asked Questions
Why is my Excel result displayed as a decimal (e.g., 0.15)?
Excel calculates math in decimals by default. To view this as a percentage, select the cell and press Ctrl + Shift + % or click the Percentage style button in the formatting menu. 0.15 will become 15%.
Can I calculate Rate of Return with dividends?
Yes. If you received dividends, you must add them to your Ending Value before performing the calculation. The adjusted formula becomes: ((Ending Value + Dividends) - Initial Value) / Initial Value.
What if I made monthly contributions?
The formulas above assume a lump sum investment at the start. If you have cash flows entering and exiting the investment at different times (like monthly deposits), you should use the XIRR function in Excel, which requires a column of dates and a column of cash flows.