Return on Investment Calculator
ROI Calculator
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The ROI calculator measures the return on an investment as a percentage of its cost. Enter the investment amount and net profit to find the ROI percentage and annualized return.
ROI Formula
ROI = ((Net Profit) / Cost of Investment) x 100
Net Profit = Final Value - Cost. Example: $5,000 invested, grew to $7,200. Net profit = $2,200. ROI = ($2,200 / $5,000) x 100 = 44%.
Annualized ROI
Annualized ROI = ((1 + ROI/100)^(1/years) - 1) x 100
Example: 44% total ROI over 3 years. Annualized = ((1.44)^(1/3) - 1) x 100 = 12.9% per year.
ROI Comparison Examples
| Investment | Cost | Final Value | Net Profit | ROI |
|---|---|---|---|---|
| Real estate | $200,000 | $280,000 | $80,000 | 40% |
| Stock portfolio | $10,000 | $14,500 | $4,500 | 45% |
| Business equipment | $15,000 | $12,000 | -$3,000 | -20% |
| Marketing campaign | $5,000 | $18,000 revenue | $13,000 | 260% |
Limitations of ROI
ROI ignores time, risk, and opportunity cost. Two investments with the same ROI may be very different if one takes 2 years and the other takes 10. Use annualized ROI when comparing investments held for different periods.
Frequently Asked Questions
How do you calculate ROI?⌄
Subtract the investment cost from the final value to get net profit. Divide net profit by the cost. Multiply by 100 to get a percentage. Example: $8,000 invested, $10,400 returned. Net profit = $2,400. ROI = ($2,400 / $8,000) x 100 = 30%.
What is a good ROI percentage?⌄
Stock market investments historically average 7-10% annually. Real estate averages 8-12% annually. Business investments above 15-20% annually are generally considered strong. Compare ROI to alternatives available at the same risk level.
What is annualized ROI?⌄
Annualized ROI converts a total return over multiple years into an equivalent annual rate. This allows fair comparison between investments held for different time periods. A 60% total ROI over 4 years equals about 12.5% annualized.
Can ROI be negative?⌄
Yes. A negative ROI means the investment lost money. $10,000 invested, $7,500 returned: net profit = -$2,500. ROI = -25%. Negative ROI occurs from bad investments, declining asset values, or costs exceeding revenues.
What is the difference between ROI and profit margin?⌄
ROI measures profit relative to the cost of the investment. Profit margin measures profit relative to revenue. A business can have a high profit margin but low ROI if it required a large capital investment to generate that revenue.