ROI Calculator
Try an example
Results
+50.0%
Total ROI
+14.5%
Annualized
1.50x
Multiple
+$5,000
Profit/Loss
About the ROI Calculator
Return on investment measures how much an investment produced relative to what it cost. It is deliberately simple: one ratio, no units, comparable across asset classes. That simplicity is why it is the most widely quoted performance figure in business, and also why it is the most widely misused.
The central problem is that plain ROI has no time dimension. A 20% return is excellent over six months, ordinary over three years, and poor over ten. Two investments quoting the same ROI can differ by an order of magnitude in quality, and nothing in the headline number reveals it. Any serious comparison has to convert to an annualized figure before the numbers mean anything.
The second problem is scope. ROI is only as honest as the cost figure in the denominator. Excluding transaction fees, carrying costs, taxes, or the value of your own time will inflate the result — often dramatically, and usually in the direction the person presenting it prefers. Most disputes about whether an investment "worked" are actually disputes about what belongs in the denominator.
Formula
ROI = [ (Final value − Initial cost) / Initial cost ] × 100
- Final value
- Total value received, including sale proceeds and any income collected along the way
- Initial cost
- Everything spent to acquire and hold the investment, not just the purchase price
- ROI
- Percentage return over the entire holding period, not per year
The numerator is net gain — what you ended with minus what you put in. Dividing by the initial cost expresses that gain as a proportion of the capital that was at risk, which is what makes a $2,000 gain on $10,000 comparable to a $200,000 gain on $1,000,000.
To make holding periods comparable, annualize: Annualized ROI = [ (1 + ROI)^(1/years) − 1 ] × 100. This is a geometric conversion, not a division. Dividing a 20% three-year return by three gives 6.67%, which is wrong — the correct answer is 6.27%, because the annual returns compound on each other.
For periods under a year the same formula applies with a fractional exponent, and it extrapolates aggressively. A 20% return in six months annualizes to 44%, not 40%. Treat sub-year annualizations with suspicion: they assume you can repeat the result, which for one-off gains is rarely true.
Worked Examples
A three-year stock position
You bought $10,000 of shares, paid $50 in commissions on the way in and out, collected $600 in dividends over three years, and sold for $11,450.
Result: 19.9% total, 6.24% annualized
The headline 19.9% sounds strong until you annualize it and find a return roughly in line with a plain index fund — while carrying single-stock risk. Note that the dividends contributed 30% of the total gain.
A rental property on cash invested
A $150,000 property bought with $30,000 down plus $5,000 closing costs. It nets $4,200 a year after mortgage, tax, insurance, maintenance and vacancy.
Result: 12.0% cash-on-cash, or 20.9% including equity build
Both figures are legitimate and they measure different things. Cash-on-cash is what lands in your bank account; the higher figure includes equity you cannot spend without refinancing or selling. Property listings almost always quote the higher one.
A marketing campaign
You spent $8,000 on ads and attribute $26,000 of revenue to it. Gross margin on that revenue is 40%.
Result: 225% on revenue, 30% on actual profit
The same campaign is a spectacular success or a marginal one depending on which figure is quoted. Marketing ROI presented without a margin adjustment is measuring turnover, not return.
How to Use the Result
What belongs in the denominator
Understating cost is the most common way ROI gets inflated. A complete initial cost figure includes:
- —Purchase price and every transaction fee — commissions, spreads, legal fees, closing costs, stamp duty.
- —Carrying costs over the holding period — storage, insurance, maintenance, management fees, financing interest.
- —Taxes actually paid on gains and income, if you want an after-tax return. Pre-tax and post-tax ROI are not comparable figures.
- —Opportunity cost of capital, when comparing against an alternative. A 5% return is a loss if the same money would have earned 8% elsewhere at equal risk.
- —Your own labour, for anything involving work. A flip that "returned 25%" over eight months of full-time effort may be paying below minimum wage once the hours are priced in.
ROI versus IRR, and when the difference bites
ROI assumes a single outflow at the start and a single inflow at the end. When cash moves in and out at multiple points — additional capital calls, periodic distributions, staged construction draws — ROI cannot represent the timing and will misstate the return.
Internal rate of return (IRR) solves this by finding the discount rate at which all cash flows net to zero, weighting each flow by when it occurred. For anything with irregular timing, IRR is the correct tool and ROI is a rough sketch.
A practical heuristic: if you can describe the investment as "I put in X and later got out Y," ROI is fine. If you need a table of dates to describe it, use IRR.
Risk is entirely absent from the number
ROI describes what happened, not how likely it was. A 30% return from a concentrated bet that had a real chance of a total loss is worse decision-making than a 12% return from a diversified portfolio, even though the first number is larger.
This matters most when ROI is used to compare across asset classes. Government bonds, index funds, individual stocks, private lending and startup equity can all quote comparable ROI figures while carrying entirely different loss distributions. Risk-adjusted measures such as the Sharpe ratio exist specifically because ROI cannot make this distinction.
Edge Cases and Common Mistakes
Negative or zero initial cost
If the initial cost is zero the ratio is undefined — you cannot express a gain as a proportion of nothing. This comes up with gifted assets, founder equity, and fully financed deals with no money down. In those cases report the absolute gain, or use the cost of an appropriate substitute, but do not report an infinite ROI.
Losses cannot be annualized past −100%
A total loss is −100% ROI, and (1 − 1)^(1/years) − 1 = −100% regardless of how long it took. Annualization simply stops conveying information at the boundary. A complete loss over ten years is meaningfully different from a complete loss over one, but the annualized figure will not show it.
Averaging ROI across periods gives the wrong answer
Returns of +50% then −50% average to 0% arithmetically, but $100 becomes $150 then $75 — a real return of −25%. Multi-period returns must be chained geometrically: multiply (1 + r) for each period, then take the root. This error consistently overstates performance, and it overstates it more the more volatile the returns are.
Inflation is not automatically removed
A 25% return over five years during which prices rose 20% is a real return of about 4%, not 25%. To deflate, divide (1 + nominal) by (1 + inflation) and subtract 1. Over short periods this is a rounding error; over a decade it changes conclusions.
Frequently Asked Questions
What counts as a good ROI?
Only relative to an alternative at similar risk. The long-run US equity market has returned roughly 10% nominal annually, so an annualized figure below that from a riskier investment is a poor trade. For business projects, the benchmark is usually the company's cost of capital, typically 8% to 15%. A number quoted without a holding period and a benchmark is not interpretable.
Why should I annualize instead of just dividing by years?
Because returns compound. Earning 6.27% each year for three years produces exactly 20% in total; earning 6.67% each year produces 21.4%. Dividing overstates the annual figure, and the overstatement grows with both the return size and the holding period.
Should dividends and rent be included in the final value?
Yes. Excluding income measures price appreciation only, which is a different and usually much smaller number. For dividend-paying stocks, income has historically accounted for roughly 40% of total long-run return, so leaving it out is not a minor omission.
How is ROI different from ROE or ROA?
They differ in the denominator. ROI uses the amount you invested. Return on equity divides profit by shareholder equity, and return on assets divides by total assets. A leveraged business can show high ROE and low ROA simultaneously, because debt magnifies returns on a smaller equity base.
Can ROI exceed 100%?
Yes. Any investment that more than doubles produces an ROI above 100%. There is no upper bound. The lower bound is −100%, since you cannot lose more than you invested — unless you used leverage or shorted, in which case losses can exceed the initial outlay and the ratio stops being well behaved.
How do I compare investments with different holding periods?
Annualize both, then check they are measured on the same basis — both pre-tax or both post-tax, both including income or both excluding it, both with fees deducted. Mismatched bases are a more frequent source of wrong conclusions than the arithmetic itself.