ROI Calculator (Return on Investment)

Annualised ROI and what it leaves out

Simple ROI ignores how long the money was invested. A 50% return over five years is far less impressive than 50% in one year. To compare, annualise it: (1 + 0.50)^(1/5) − 1 ≈ 8.4% per year.

ROI also leaves out risk and extra costs unless you include them. Include brokerage, taxes, maintenance and your own time in the cost, and the gains you actually receive after tax in the return. For investments with many cash flows at different dates, such as monthly SIPs, an internal rate of return (XIRR) gives a more accurate picture than a single ROI figure.

How ROI is calculated

Return on investment compares the gain from an investment with what it cost: ROI = (final value − cost) ÷ cost × 100. A result of 25 percent means you gained a quarter of what you put in. Because the formula is so simple, it works for shares, property, equipment, marketing campaigns or a small business purchase.

Include every cost in the denominator: brokerage, taxes, fees, repairs and your own time if it matters. Leaving costs out is the most common reason ROI figures look better than reality.

Worked example

You buy equipment for 80,000 and it brings in 1,10,000 of extra profit before you sell it for 10,000. The total return is 1,20,000, so ROI = (1,20,000 − 80,000) ÷ 80,000 = 50 percent. If that took 3 years, the annualised return is 1.5^(1/3) − 1 ≈ 14.5 percent a year.

Annualised ROI

Plain ROI ignores time: 50 percent over one year is excellent, but 50 percent over ten years is only about 4.1 percent a year. Always convert to an annual rate (the CAGR calculator does this) before comparing investments with different holding periods.