Return on Investment (ROI) is a popular financial metric used to evaluate the efficiency and profitability of an investment or to compare several different investments.

What is the limitation of simple ROI?

Simple ROI does not take the duration of the investment into account, making it difficult to compare a 20% return over 1 month to a 20% return over 10 years.

What is Annualized ROI?

Annualized ROI calculates the average yearly geometric rate of return on an investment, providing a standardized metric to compare investments of differing durations.

A "good" ROI depends on the asset class and risk levels. For stock indices, an annual ROI of 8% to 10% is solid, while higher-risk venture capital targets over 30% ROI.

Does ROI include dividends or taxes?

Yes, a complete ROI calculation should incorporate all interest, dividends, and cash flows received, alongside any taxes or maintenance fees paid.

Finance Tool

ROI Calculator

Calculate the Return on Investment (ROI), annualized ROI, and net profit margins to measure the efficiency and profitability of your financial investments.

Interactive ROI Calculator Workspace

Live Solver

Amount Invested ($)

Amount Returned ($)

Investment Term (Years)

Profitability Breakdown

Total Net Return (Profit)$13,000net profit payout

Simple ROI Ratio52%overall return %

Annualized ROI14.98%annual geometric return

Mathematical Formula & Variables

Equation ModelROI = [(Gain - Cost) / Cost] * 100

The Return on Investment ratio evaluates the relative profitability of an investment by comparing the net gain directly against the investment cost.

Variable Definitions

Symbol	Description
ROI	Return on Investment percentage
Gain	Final returned value of the asset
Cost	Original amount invested

How to Use the ROI Calculator

Enter the original investment Cost (Amount Invested).
Input the final Gain or current returned Value.
Specify the investment duration (Term) in years or months to calculate the Annualized ROI.
Calculate to review your net profit, ROI ratio, and annualized return rate.

Practical Example Calculation

Scenario Context: Calculating ROI and Annualized ROI on a stock portfolio purchase of $20,000 that was sold for $26,000 after 3 years.

Step 1: Identify values: Cost = $20,000, Gain = $26,000, Term = 3 years.

Step 2: Calculate Net Profit: $26,000 - $20,000 = $6,000.

Step 3: Calculate simple ROI: ($6,000 / $20,000) * 100 = 30%.

Step 4: Calculate Annualized ROI: [(1 + 0.30)^(1/3) - 1] * 100 = [(1.30)^0.3333 - 1] * 100.

Step 5: Solve: [1.09139 - 1] * 100 = 9.14%.

The total Return on Investment is 30%, which translates to an annualized ROI of 9.14%.

Frequently Asked Questions

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