ROI Calculator
Use this free ROI Calculator to calculate your Return on investment instantly and accurately.
Investment
Return
What is an ROI Calculator?
An ROI Calculator measures how profitable an investment is relative to its cost. By entering the amount invested and the amount returned, plus the holding period, you get both the simple ROI percentage and the annualized ROI for fair year-over-year comparisons.
How to calculate ROI manually (the formula)
ROI = ((Amount Returned − Amount Invested) ÷ Amount Invested) × 100
Annualized ROI = ((Amount Returned ÷ Amount Invested)¹⁄&sup5; − 1) × 100
Where n is the number of years the investment was held.
Example calculation
Invest $10,000, receive $13,000 after 3 years:
Simple ROI = (($13,000 − $10,000) ÷ $10,000) × 100 = 30%
Annualized ROI = (($13,000 ÷ $10,000)¹⁄³ − 1) × 100 = 9.14%
Common mistakes
- Using ROI to compare investments of different durations — A 30% ROI over 5 years is worse than a 25% ROI over 2 years. Always annualize when comparing different timeframes.
- Ignoring all costs — Include transaction fees, management fees, taxes, and maintenance costs. For real estate, factor in property tax, insurance, and repairs.
- Confusing ROI with profit margin — ROI measures return on the total investment. Profit margin measures profit as a percentage of revenue. They are different metrics for different purposes.
- Not considering opportunity cost — If your investment returned 4% but a risk-free savings account paid 5%, you effectively lost money in opportunity cost.
Frequently asked questions
What is an ROI calculator?
An ROI calculator measures the profitability of an investment by calculating the percentage return relative to the amount invested, with or without a time factor.
How is ROI calculated?
ROI = ((Return − Cost) ÷ Cost) × 100. A positive percentage means profit; negative means loss. Annualized ROI adjusts for the holding period to compare investments of different lengths.
What is the difference between ROI and annualized ROI?
ROI shows the total return over the entire holding period. Annualized ROI shows the average return per year, making it possible to compare investments held for different timeframes.
What is a good ROI?
A good ROI depends on the investment type and risk. Stock market averages around 7–10% annually. Real estate typically returns 8–12%. Higher potential returns come with higher risk.
Does ROI account for risk?
No, ROI is a pure return metric and does not factor in risk, inflation, taxes, or opportunity cost. Always consider risk-adjusted metrics like the Sharpe ratio alongside ROI.
What are the limitations of ROI?
ROI does not account for the time value of money, investment risk, inflation, taxes, or holding period unless annualized. It is best used as a quick screening tool rather than a comprehensive analysis.