Return on Investment (ROI) Calculator
Measure the profitability and efficiency of your investments.
What is Return on Investment (ROI)?
Return on Investment (ROI) is a key performance indicator (KPI) used to measure the profitability of an investment. It's a simple ratio that compares the net profit of an investment to its initial cost. A high ROI means the investment's gains compare favorably to its cost, making it an efficient and profitable venture.
How to Calculate ROI
The standard formula to calculate ROI is straightforward:
ROI = (Net Profit / Cost of Investment) × 100%
Where Net Profit = Final Value - Cost of Investment.
Example: If you invest $1,000 in a stock and sell it a year later for $1,250, your net profit is $250. The ROI is ($250 / $1,000) * 100 = 25%.
Why is Annualized ROI Important?
Standard ROI is useful, but it doesn't consider the investment's time period. A 25% return in one year is far better than a 25% return over five years. Annualized ROI standardizes the return to a one-year period, making it easier to compare different investments with different time horizons.
Annualized ROI = [((1 + ROI)1/n) - 1] × 100%
Where n is the investment timeframe in years.
Example: An investment that yields a 50% ROI over 3 years has an Annualized ROI of [((1 + 0.50)^(1/3)) - 1] * 100 = 14.47% per year. This gives you a much clearer picture of its performance.