The Return on Investment (ROI) Calculator measures the gain or loss of an investment compared with its cost, both in total and as a yearly (annualized) rate.
| Investment gain | $1,000.00 |
| ROI | 100.00% |
| Annualized ROI | 18.23% |
| Investment length | 4.140 years |
Return on investment (ROI) compares the profit from an investment with what it cost. It is popular because it is simple and works for almost anything: shares, property, a marketing campaign, new equipment or a training course.
ROI = (Amount returned − Amount invested) ÷ Amount invested × 100. Annualized ROI = [(Amount returned ÷ Amount invested)^(1 ÷ years) − 1] × 100.
Worked example: investing $1,000 and getting back $2,000 gives a gain of $1,000 and an ROI of 100%. If that took 4.14 years, the annualized ROI is 2^(1/4.14) − 1 = 18.23% a year.
Plain ROI ignores time. A 50% return over one year is excellent; the same 50% over ten years is only about 4.1% a year. Annualized ROI puts investments of different lengths on the same footing, so you can compare them fairly with a savings rate or a market index.
Bob put $50,000 into a farm and has received $70,000 back. His ROI is (70,000 − 50,000) ÷ 50,000 = 40%. If this took five years, his annualized ROI is 1.4^(1/5) − 1 = 6.96% a year.
ROI does not show risk, ignores the timing of cash flows in between, and depends on what you count as cost. Include fees, taxes, maintenance and your own time for a true picture. For irregular cash flows, internal rate of return (IRR) or net present value give a more precise answer.
Can ROI be negative? Yes, if you get back less than you put in.
What is a good ROI? It should beat what you could earn at similar risk elsewhere, and inflation.
Is ROI the same as profit margin? No; ROI divides by the money invested, margin divides by revenue.