Before you spend money on something, whether that’s a share portfolio, a rental flat, new equipment or an advertising campaign, it helps to ask one plain question: what will I get back for it? Return on investment, or ROI, answers it in a single percentage. This calculator takes what you put in and what you got out, and shows your net profit, your ROI and, if you enter a time period, the yearly rate behind it.
Enter the initial investment, the total you paid or spent.
Enter the final value, the amount you received or the investment is now worth.
Add any extra costs, such as fees or commissions, if you want them included.
Enter the time period in years if you’d like an annualised figure.
Read the result: net profit, ROI as a percentage, and the annualised ROI.
ROI = (final value − initial cost) ÷ initial cost × 100
It’s the same as net profit divided by cost:
ROI = net profit ÷ cost × 100
Because ROI on its own ignores time, there’s a second formula for comparing investments held for different lengths of time:
Annualised ROI = ((final value ÷ initial cost)^(1 ÷ years) − 1) × 100
A simple gain. You buy an item for $5,000 and sell it for $6,500.
Net profit: 6,500 − 5,000 = $1,500
ROI: 1,500 ÷ 5,000 × 100 = 30%
Including fees. You buy shares for $5,000 and sell them for $5,600, and you pay $100 in total fees.
Net profit: 5,600 − 5,000 − 100 = $500
ROI: 500 ÷ 5,000 × 100 = 10%
Without the fees it would have looked like 12%. That’s why it’s worth entering every cost.
A loss. You buy something for $8,000 and sell it for $6,000.
Net profit: −$2,000
ROI: −2,000 ÷ 8,000 × 100 = −25%
A negative result simply means you lost money.
A marketing campaign. You spend $2,000 on ads, and the campaign brings in $3,000 of profit after the cost of the products sold.
Net gain: 3,000 − 2,000 = $1,000
ROI: 1,000 ÷ 2,000 × 100 = 50%
A big ROI sounds impressive until you notice how long it took. Compare two investments:
Investment A: 40% ROI after 5 years
Investment B: 25% ROI after 2 years
Investment A looks better at first glance. Convert both to a yearly rate:
A: 1.40^(1÷5) − 1 = about 7.0% a year
B: 1.25^(1÷2) − 1 = about 11.8% a year
B grew considerably faster, even though its total return was smaller. Annualising the figure puts both on the same footing.
Here’s another example. $10,000 grows to $13,310 in 3 years. The total ROI is 33.1%, and the annualised ROI is 1.331^(1÷3) − 1 = exactly 10% a year.
There’s no single answer. It depends on the type of investment, the risk and the time involved. A return that’s fine for a cautious, low-risk option would be disappointing for a risky one. A more useful question is whether the return is high enough to justify the risk you’re taking, and whether it beats the alternatives available to you, including simply leaving your money in a savings account.
ROI is simple, and that is both its strength and its limit.
Risk. Two investments can show the same ROI while one was far riskier than the other.
Timing. Without annualising, a quick return and a slow one look the same.
Inflation. A 3% gain in a year when prices rose 4% means you can buy less than before.
Taxes. Profits may be taxed, which lowers what you keep.
Cash flow. If money went in and out at different times, a single percentage hides that. Other measures, such as the internal rate of return (IRR), handle this better.
Hidden costs. Your own time, maintenance and the opportunity cost of using the money elsewhere often don’t make it into the calculation.
Leaving out costs. Fees, commissions, repairs and running costs all reduce the true return.
Counting revenue as profit. For a business, use profit, not sales. Otherwise ROI looks far better than it is.
Comparing investments of different lengths without annualising. As the example shows, this can point you in the wrong direction.
Judging by one result. One good year doesn’t make a good strategy, and past returns don’t guarantee future ones.
Using it as the only measure. ROI is one tool among several. Consider risk and your own goals too.
What is ROI in simple terms?
It’s how much you gained or lost compared with how much you put in, shown as a percentage.
Can ROI be negative?
Yes. A negative ROI means you got back less than you invested.
What’s the difference between ROI and profit?
Profit is an amount of money. ROI expresses that profit as a share of what you invested, which lets you compare investments of different sizes.
Should I use ROI or annualised ROI?
If you’re comparing investments held for different lengths of time, use the annualised figure. For a single quick check, ROI is enough.
Can I use ROI for a business decision?
Yes. It’s widely used for equipment purchases, marketing spend and projects. Be careful to include all the relevant costs and to base the gain on profit.
Is a high ROI always good?
Not necessarily. A high return often comes with high risk, and an unusually high promised return deserves a closer look before you commit any money.
This calculator provides estimates for general information only and is not financial or investment advice. Past performance doesn’t guarantee future results, and all investments carry risk. Please speak to a qualified financial adviser before making investment decisions.