How to Calculate ROI (Return on Investment)

Return on Investment (ROI) expresses how much you gained or lost on an investment relative to its cost. It is one of the most widely used metrics in business and personal finance precisely because it is simple: one percentage that lets you compare very different investments side by side.

The ROI formula

ROI = (Net Profit / Cost of Investment) × 100. Net profit is the final value minus the initial cost. If you invested $5,000 and it grew to $6,500, your net profit is $1,500 and your ROI is 30%. Our ROI calculator handles the arithmetic and also shows the net dollar gain.

Time matters: annualized ROI

A 30% ROI looks great — but 30% over 10 years is very different from 30% over 1 year. Annualized ROI (CAGR) accounts for time, letting you compare a 3-year investment with a 7-year one fairly. The formula is: (Final Value / Initial Value)^(1/years) − 1. Our CAGR calculator handles this.

What ROI does not capture

ROI does not adjust for inflation, taxes, or risk. A nominal ROI of 8% during a period of 6% inflation is only 2% in real purchasing power. For a complete picture, consider after-tax returns and the risk profile of the investment alongside the raw ROI figure.