Return on investment (ROI) measures what you gained relative to what you put in: ROI = (final value + income − total cost) ÷ total cost. Investing $10,000 and ending with $14,500 is a 45% ROI. A total ROI hides how long it took, though. Over 3 years that 45% is an annualized return of 13.19% a year, the figure to compare against other investments.
This calculator handles costs such as commissions or renovation spending and income such as dividends or rent, and gives both the total and the compound annual growth rate (CAGR).
How to use the roi calculator
- Enter what you paid for the investment.
- Add any extra costs: trading fees, closing costs, improvements or other money you put in.
- Enter the final value (or what you sold it for, after selling costs) and any income received along the way.
- Enter how long you held it to get the annualized return.
Formula
Worked example
You invested $10,000, sold for $14,500 three years later, and had no other costs or income.
- Net gain: $14,500 − $10,000 = $4,500.
- ROI: 4,500 ÷ 10,000 = 45.00%.
- CAGR: 1.451/3 − 1 = 13.19% a year. Check: 10,000 × 1.13193 ≈ 14,500.
If the same gain took 6 years, the CAGR would be only 6.39% a year.
Limits of simple ROI
ROI and CAGR treat money as invested once at the start. If you added or withdrew money along the way, a money-weighted return (IRR) is more accurate. Income is counted as if received at the end, which slightly understates the return when dividends were reinvested earlier. ROI also ignores taxes and inflation; convert to real terms with the inflation calculator.
For the plain percentage change between two prices use the percent change calculator. For a business product, the margin & markup calculator and the break-even calculator are often more useful than ROI.
Second example: including income
You buy shares for $8,000, collect $400 in dividends over two years and sell for $9,200. Net gain = $9,200 + $400 − $8,000 = $1,600, so total ROI = $1,600 ÷ $8,000 = 20%. Annualized over two years: 1.20^(1/2) − 1 = 9.54% a year. Leaving out the dividends would understate the return at 15% (7.24% a year).
Comparing investments of different lengths
Total ROI favors long holding periods, so compare annualized figures. Investment A returns 30% over 4 years; investment B returns 18% over 2 years. Annualized, A is 1.30^(1/4) − 1 = 6.78% a year and B is 1.18^(1/2) − 1 = 8.63% a year, so B grew faster even though its total ROI is lower. Annualized ROI is the same as the compound annual growth rate (CAGR); to project a rate forward, use the compound interest calculator.
Caveats and assumptions
- Past returns do not predict future returns.
- Taxes, inflation and the timing of cash flows are not considered.
- Assumes a single upfront investment; irregular contributions call for an IRR calculation.
Frequently asked questions
How do you calculate ROI?
ROI = (final value + income − total cost) ÷ total cost × 100. $10,000 growing to $14,500 is a 45% ROI.
What is annualized ROI?
The constant yearly rate that would produce the same total return: (ending ÷ beginning)^(1/years) − 1. A 45% gain over 3 years is 13.19% a year.
What is a good ROI?
It depends on risk, time and alternatives. Compare annualized returns, after fees and taxes, with what a lower-risk option would have earned over the same period.
Is ROI the same as profit margin?
No. ROI divides gain by the amount invested; profit margin divides profit by revenue (selling price).
Can ROI be negative?
Yes. If you get back less than you put in, the gain is negative and so is the ROI. Selling a $10,000 investment for $8,500 is a −15% ROI.
Sources
- Investor.gov — Glossary — investment return terminology
- Investor.gov (SEC) — Compound Interest Calculator — compounding behind annualized returns
- OpenStax Prealgebra 2e — 6.2 Solve General Applications of Percent — percent of an amount
This calculator gives estimates for planning and education only. It is not financial, tax or investment advice. Your lender, card issuer, employer or tax authority uses its own terms, fees and rounding, so confirm figures with them before deciding. See our disclaimer and how we build and check calculators.