How to Calculate Return on Investment (ROI)
Return on Investment (ROI) measures the profitability of an investment relative to its cost. It is one of the most widely used metrics in business and personal finance for comparing the efficiency of different investments. A simple ROI percentage tells you how much you made (or lost) relative to what you put in, while annualised ROI adjusts for the time period to allow fair comparisons.
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Formula
ROI Calculator
Calculate return on investment and annualised return from an initial investment.
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Worked Example
Given:
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FAQs
What is a good ROI?
A good ROI depends on the investment type and risk. The S&P 500 historically returns around 10% per year. Real estate averages 8–12%. Savings accounts offer 1–5%. Any investment should be compared against alternatives of similar risk — a higher return often comes with higher risk.
Why is annualised ROI more useful than simple ROI?
Simple ROI does not account for how long the investment was held. A 50% return over 10 years is very different from a 50% return over 1 year. Annualised ROI (also called CAGR — Compound Annual Growth Rate) normalises returns to a per-year basis, enabling fair comparisons between investments of different durations.
Does ROI account for inflation?
Standard ROI is a nominal return — it does not adjust for inflation. Real ROI subtracts the inflation rate from the nominal return. If your investment returned 8% but inflation was 3%, your real return was approximately 5%. For long-term investments, real return is the more meaningful measure.