Return on Investment (ROI) Calculator
Analyze the profitability and efficiency of your investments quickly.
Understanding Return on Investment (ROI)
Return on Investment (ROI) is a fundamental financial metric used to evaluate the efficiency of an investment or compare the efficiencies of several different investments. Whether you are investing in stocks, real estate, or a new marketing campaign for your business, knowing your ROI helps you make data-driven decisions.
How the ROI Calculation Works
The standard ROI formula is straightforward. It measures the gain or loss generated on an investment relative to the amount of money invested. The formula is:
ROI = ((Final Value – Initial Cost) / Initial Cost) × 100
Why Annualized ROI Matters
Standard ROI tells you the total gain over the life of the investment, but it doesn't account for time. An investment that returns 50% over 10 years is very different from one that returns 50% in 1 year. The annualized ROI provides the geometric average amount of money earned by an investment each year over a given time period.
Examples of ROI Calculations
| Scenario | Initial Cost | Final Value | ROI (%) |
|---|---|---|---|
| Stock Market | $5,000 | $6,500 | 30% |
| Small Business Equipment | $2,000 | $2,800 | 40% |
| Real Estate Flip | $200,000 | $250,000 | 25% |
Interpreting Your Results
- Positive ROI: Means the investment resulted in a profit.
- Negative ROI: Indicates a loss, meaning the final value was less than the initial cost.
- 0% ROI: Means you broke even; no money was gained or lost.
Frequently Asked Questions
What is a "good" ROI?
A "good" ROI depends on the asset class and your risk tolerance. For example, the S&P 500 historically returns about 10% annually. In venture capital, investors might look for 100% or more to compensate for high risk.
Does ROI include taxes?
Standard ROI calculations usually look at "gross" return. To get a more accurate picture, you should subtract taxes and transaction fees from your final value.