Investment ROI Calculator
Understanding Investment Return on Investment (ROI)
Return on Investment (ROI) is a fundamental metric used to evaluate the profitability of an investment. It helps investors understand how much money they have gained or lost relative to the amount they initially invested. Calculating ROI is straightforward and provides a clear percentage that can be used to compare different investment opportunities.
How to Calculate ROI
The basic formula for ROI is:
ROI = ((Final Value of Investment – Initial Cost of Investment) / Initial Cost of Investment) * 100
In many cases, especially for investments held over time, it's also useful to consider the annualized ROI to standardize returns across different time frames. The formula for annualized ROI is:
Annualized ROI = ((1 + ROI)^(1 / Number of Years)) – 1
Where 'Number of Years' is the duration of the investment in years.
Using the Investment ROI Calculator
Our Investment ROI Calculator simplifies this process for you. Simply enter the following details:
- Initial Investment: The total amount of money you initially put into the investment.
- Final Value: The total value of your investment at the end of the period.
- Time Period (Months): The duration for which you held the investment, measured in months.
Once you click "Calculate ROI," the calculator will provide you with:
- Total ROI (%): The overall percentage gain or loss on your investment.
- Annualized ROI (%): The average annual return on your investment, making it easier to compare with other investments with different holding periods.
Example Calculation:
Let's say you invested $5,000 (Initial Investment) in a stock. After 18 months (Time Period), the value of your investment grew to $7,500 (Final Value).
Using the calculator:
- Initial Investment: $5,000
- Final Value: $7,500
- Time Period: 18 months
The calculator would show:
- Total ROI: 50% ( (($7,500 – $5,000) / $5,000) * 100 )
- Annualized ROI: Approximately 29.15% ( (1 + 0.50)^(1 / (18/12)) – 1 ) * 100
This annualized figure allows you to see that even though the total return was 50% over 1.5 years, the equivalent annual return is around 29.15%. This metric is invaluable for making informed decisions about where to allocate your capital.