ROI Calculator

How it works

ROI, return on investment, measures how much an investment gained or lost relative to the amount put in:

gain = final value − investment
ROI % = gain / investment × 100

ROI says nothing about how long the money was tied up. Two investments with the same ROI are very different if one took a year and the other ten. That is what the optional holding period is for. Given it, the calculator also shows the annualized return, the yearly rate that compounds to the same final value:

annualized ROI % = ((final value / investment) ^ (1 / years) − 1) × 100

The second tab runs the calculation the other way. Given an amount and a target ROI, it returns the final value and the gain:

final value = investment × (1 + ROI % / 100)

All amounts are handled as whole cents internally, not decimals. In the target tab the gain is rounded to the nearest cent (a tie rounds away from zero), and the gain shown is always the final value minus the investment, so the figures add up to the cent. The ROI percentages are calculated from those amounts.

The investment must be above zero, because ROI is measured against it; with nothing invested the tool returns an error instead of a number. A final value of zero is accepted and gives −100%. The holding period can be anything from 0.01 to 100 years, so it can be shorter than a year: enter 0.5 for six months.

Annualized ROI is the compound annual growth rate

The annualized figure is what finance texts call CAGR, the compound annual growth rate. It is the same formula, and it describes a steady yearly rate that would end at the same value. The real path of an investment is rarely steady, so read it as an average, not as what happened each year.

Dividing the total ROI by the number of years is not a shortcut. Say $2,000 grows to $3,000 over 4 years. The total ROI is 50%, and 50% / 4 would suggest 12.5% a year. But $2,000 compounding at 12.5% for 4 years reaches 2,000 × 1.125⁴ = about $3,204, more than the $3,000 you actually got. The correct yearly rate is 1.5^(1/4) − 1 = 10.7%.

A period shorter than a year works the same way. $10,000 that becomes $10,500 in six months is a ratio of 1.05 over 0.5 years, so the annualized return is 1.05² − 1 = 10.25%.

ROI is not profit margin, and not ROAS

ROI divides the profit by what you put in. Profit margin divides it by what you sold for. A reseller who pays $60 for an item and sells it for $100 made $40: the ROI on the $60 is 40 / 60 = 66.7%, while the margin is 40 / 100 = 40%. Which is "right" depends on the question: ROI says what your money earned, margin says how much of each sale you keep.

ROAS, the return on ad spend, is a third thing. It divides revenue, not profit, by the advertising cost, so it can look healthy while the business loses money. Spend $1,000 on ads that bring $3,000 in sales, with $2,400 of goods sold: ROAS is 3, but the total spend is $3,400 against $3,000 back, a gain of −$400 and an ROI of −11.8%. For the advertising side, see the ad metrics calculator.

Examples

Total return. You invest $1,000 and the position is worth $1,500 when you sell. The gain is $500 and the ROI is 50%.

Annualized return. The same 50% reached after 2 years is an annualized return of 22.5%, because 1.5 raised to the power of one half is 1.2247. Reached after 3 years, it is 14.5% a year. The longer it took, the lower the yearly rate.

Comparing two investments. Investment A returned 40% over 5 years and investment B returned 25% over 2 years. A looks better on plain ROI, but annualized A made 7.0% a year and B made 11.8% a year.

Target ROI. You want a 12% return on $5,000. The final value is $5,600, a gain of $600.

A loss. $1,000 that ends at $800 is a gain of −$200 and an ROI of −20%. Over 5 years that is −4.4% a year.

Percentage versus amount. A 50% ROI on $100 is a $50 gain. A 10% ROI on $10,000 is a $1,000 gain. The percentage tells you how efficiently the money worked, not how much it earned, so look at both numbers the tool shows.

What a loss takes to undo. The gain needed to get back to the starting point is loss / (100 − loss), as percentages:

| Loss | Gain needed to break even | |---|---| | 10% | 11.1% | | 20% | 25% | | 30% | 42.9% | | 50% | 100% | | 75% | 300% |

You can check any row with the target tab: $1,000 after a 75% loss is $250, and a 300% target ROI turns $250 into $1,000.

Things to watch for

• Compare investments on the annualized figure. Plain ROI favors whichever investment you held longer. Add the holding period before ranking anything.
• Losses need a bigger gain to undo. After a 20% loss you need a 25% gain to break even, and after a 50% loss you need 100%. This is why avoiding large losses matters more than the average return suggests.
• Enter amounts after costs. Brokerage fees, taxes, maintenance and financing costs lower the real return. If you leave them out of the final value, the ROI is higher than what you actually kept.
• ROI ignores risk and inflation. A high ROI from a risky bet is not equal to the same ROI from a safe one, and a nominal 3% return in a year of 4% inflation loses purchasing power. For regular deposits and compounding over many years, the compound interest calculator is the better fit.
• A very short period inflates the annualized figure. A 2% gain in one week annualizes to a huge yearly rate that nobody could actually repeat. Treat the annualized number as a comparison tool, not a forecast.
• ROI has no sense of timing in between. It sees one amount in and one amount out. Rent, dividends or other payouts you received along the way can be added to the final value, but that treats them as if they arrived on the last day. If you added or withdrew money at different dates, a single ROI cannot describe it.
• Decide what counts as the investment. In the ad example above, counting only the $1,000 of ads as the investment would give a very different figure than counting all $3,400. Use the same definition for everything you compare.
• Everything runs in your browser. The amounts you enter are not sent to a server.

For the margin on a sale rather than the return on an investment, use the profit margin calculator.