This online Return on Investment Calculator performs calculation of the gain or loss on an investment, the overall return on investment (ROI), as well as the annualized ROI given amounts invested and returned and time elapsed. The time elapsed can be presented in the form of starting and ending dates or investment period length.
Return on Investment Formula
Return on investment (ROI) is a ratio between net income over a period of time and investment cost. ROI can be calculated in different ways depending on the goal and application. General formula for calculating ROI is:
$$ROI(\%) = \frac{Amount\kern.3em Returned \kern.3em – Amount\kern.3em Invested}{Amount\kern.3em Invested} · 100\%.$$
A high ROI means the investment’s gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.
Annualized Rate of Return
One of the disadvantages of the regular ROI calculation is that it doesn’t consider time periods. To deal with this issue an annualized ROI formula is used. An annualized rate of return is calculated as the equivalent annual return an investor receives over a given period.
The generalized formula, which is exponential to take into account compound interest over time, is:
$$Annualized\kern.3em ROI(\%) = \left({\left(\frac{Amount\kern.3em Returned}{Amount\kern.3em Invested}\right) ^{1/n}} -\kern.3em 1\right) · 100\%,$$
where \(n\) is the length of investment in years.
Let’s consider a simple example. Assume an investor invested $50,000 into a business project and, four years later, the total profit amounts to $65,000. How to calculate ROI is obvious from the above formulas. But the easiest way is to plug the data into our ROI calculator. As the result we would have ROI = 30% and annualized ROI = 6.78%.
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Check out our other financial calculators such as Internal Rate of Return Calculator or Net Present Value Calculator.