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ROI = ((final value − initial investment) ÷ initial investment) × 100, net profit as a percentage of cost. The annualized ROI (CAGR) = (final ÷ initial)⁽¹ ÷ years) − 1, the steady yearly rate that would grow the investment from start to end. Results are estimates for planning, not professional investment advice.
Return on investment (ROI) measures the profitability of an investment as a percentage of its cost. The formula is: ROI = ((final value − initial investment) ÷ initial investment) × 100. Net profit is simply final value minus initial investment.
Worked example: you invest $10,000 and it grows to $14,000. Net profit = $14,000 − $10,000 = $4,000. ROI = ($4,000 ÷ $10,000) × 100 = 40%. That means every dollar you put in came back as $1.40.
The annualized ROI converts that total into a steady yearly rate, the compound annual growth rate (CAGR): annualized = (final value ÷ initial investment)⁽¹ ÷ years) − 1. For the same example over 3 years: (1.4)⁽¹/3) − 1 = 11.9% per year. A constant 11.9% compounded for 3 years turns $10,000 into $14,000.
Always count every cost on the investment side, fees, commissions, upkeep and taxes, or the percentage comes out too high. And include every form of return: dividends, rental income and interest on top of price appreciation.
Enter the amount you originally invested, the current or final value of the investment, and how long you held it in years (fractions are fine, 18 months is 1.5 years). Choose your currency from the list.
The calculator shows your net profit in currency, your total ROI as a percentage, and your annualized ROI (CAGR) so you can fairly compare investments held for different lengths of time. A chart splits the final value into your original investment versus the profit it earned.
Results are estimates for planning, not professional investment advice. Past performance does not predict future returns.
Basic ROI ignores the clock, a 30% gain looks the same whether it took one year or ten. The annualized figure fixes that, and the difference is dramatic:
| Time to turn $20,000 into $26,000 | Total ROI | Annualized ROI | |---|---|---| | 1 year | 30% | 30.0% a year | | 2 years | 30% | 14.0% a year | | 3 years | 30% | 9.1% a year | | 5 years | 30% | 5.4% a year | | 10 years | 30% | 2.7% a year |
The same 30% total spans from an excellent yearly result down to below a savings account, purely because of time. This is why any comparison between investments held for different periods must use the annualized number, never the total. A 50% return in 2 years (22.5% a year) beats a 60% return in 5 years (9.9% a year), the shorter period performed better.
ROI and CAGR answer different questions but come from the same numbers. Total ROI describes the full change over the period you held the investment; CAGR expresses that same change as a smooth annual rate.
Example: $10,000 growing to $16,000 over 5 years. Total return = (16,000 − 10,000) ÷ 10,000 = 60% for the full period. CAGR = (1.6)⁽¹/5) − 1 = 9.9% per year, compounded.
This does not mean the investment delivered 9.9% in each calendar year. It means a steady 9.9% annual compound rate would connect the start and end values, the same endpoints, a different lens. Use total ROI when reporting how a completed investment did; use annualized ROI (CAGR) when comparing two investments held for different lengths of time.
Never average total return by dividing by years: a $100 investment rising 50% then falling 20% has a 20% total return and a 9.5% CAGR, dividing 20% by 2 years gives 10%, which would not reproduce the ending value when compounded.
There is no single good number, it depends on the industry, the risk and the time it took. The honest yardstick is what long-run investments have paid each year, compounded, because your money could have gone there instead.
| US investment, annualized | Long-run average | |---|---| | Stocks (S&P 500, dividends included) | about 10% a year | | Corporate bonds | about 6–7% a year | | Gold | about 5–6% a year | | 10-year Treasury bonds | about 4–5% a year |
The stock market's long-run figures are the hurdle rate for most investors: a riskier bet, new equipment, a marketing campaign, a startup, should clear that figure by a clear margin to justify the extra uncertainty. For a low-risk investment, 4–5% a year is fair; for a business purchase carrying real risk, it is thin.
Also judge in real terms: an 8% nominal return with 3% inflation is only about 5% in actual purchasing power. And remember that returns on rental properties and dividend stocks include income, not just price gains, include dividends, rent and interest in both the initial cost and the final value.
The four mistakes that most often flatter a return figure:
Ignoring fees and running costs. Commissions, subscriptions, upkeep and financing interest all belong on the cost side. A 1% annual fee costs roughly a quarter of your wealth over 30 years at 7% returns, $10,000 at 7% becomes $76,123, but at 6% (after the fee) it becomes $57,435.
Forgetting income. Dividend-paying stocks and rental properties generate significant returns from income, not just appreciation. A stock returning 3% yield plus 5% price growth has an 8% total return, not 5%.
Comparing different time periods without annualizing. A 50% gain in 2 years is a 22.5% annual rate; a 60% gain in 5 years is 9.9% a year. The totals alone would rank them wrong.
Ignoring taxes and inflation. Short-term capital gains are taxed as ordinary income, and inflation shrinks what the gain is really worth. Also remember the loss-recovery math: a 50% loss needs a 100% gain just to get back to even, so avoiding large losses matters more than chasing large gains.
Simple ROI is the quickest check, but it treats a dollar next year the same as a dollar today. When that is not good enough:
Payback period tells you how many months until the money spent comes back, useful when cash is tight. An $8,000 tool that adds $2,560 of gross profit a month pays back in about 3 months, but payback says nothing about profit after that point, so pair it with ROI.
Internal rate of return (IRR) is the yearly rate that sets the value of all cash in and out to zero, with timing counted, the right tool when cash arrives unevenly over several years.
Net present value (NPV) converts all future cash to today's dollars at a rate you choose, then subtracts the cost, the right tool for deciding whether a long project beats your cost of money.
Profit margin and ROE answer different questions: margin is profit as a share of revenue (pricing), ROE is profit as a share of your own equity. ROI is profit as a share of money invested, a quick check on one lump-sum deal.
ROI = ((final value − initial investment) ÷ initial investment) × 100. Subtract what you invested from the present value, divide by what you invested, and multiply by 100. For example, put $10,000 in and get $12,500 back: ($2,500 ÷ $10,000) × 100 = 25% ROI.
It depends on the industry, the risk and the time it took. As a yardstick, US stocks (S&P 500) returned about 10% a year compounded over the long run, Treasury bonds about 4.5%. A low-risk investment earning 4–5% a year is fair; a risky business purchase should clear the stock market figure by a clear margin.
ROI measures profit relative to the money invested: ($4,000 of gross profit on a $10,000 investment = 40% ROI). Profit margin measures profit relative to revenue: a $400 job that leaves $100 of profit = 25% margin. One judges investment efficiency; the other judges pricing.
No. Basic ROI has no clock attached, so a 30% gain looks the same over one year or ten. Annualized ROI (CAGR) fixes the time problem: 30% over 1 year is 30% a year; the same 30% over 10 years is 2.7% a year. Compare investments by the annualized figure.
ROI is the total percentage change over the whole holding period: ((final − initial) ÷ initial) × 100. CAGR is that same change expressed as a smooth annual rate: (final ÷ initial)⁽¹ ÷ years) − 1. Total ROI reports how one investment did; CAGR lets you compare investments held for different lengths of time.
The meaning is simple: you got back less than you put in. If the final value is lower than the initial investment, ROI is negative. A $10,000 investment that ends at $8,000 after 4 years has an ROI of −20% and a CAGR of about −5.4% per year. The same formula describes losses as well as gains.
Annualized ROI = (final value ÷ initial investment)⁽¹ ÷ years) − 1, expressed as a percentage. For example, $10,000 growing to $16,000 over 5 years: (1.6)⁽¹/5) − 1 = 9.86% per year. It shows the steady yearly rate that would connect the start and end values.
Always count every cost on the investment side: purchase price plus fees, commissions, upkeep, running costs and taxes. For real estate, include closing costs, repairs and property taxes as the initial investment, and rental income plus the sale price as the final value. Include every form of return: sale value plus dividends, rental income, interest or savings. Leaving out costs inflates the percentage; leaving out income understates it.