Return on Investment (ROI) Ratio Calculator

Calculate the Return on Investment (ROI) to assess the profitability of an investment. This calculator provides the investment gain, ROI, annualized ROI, and investment duration, helping investors evaluate investment efficiency.

Standard
Step by Step
Chart View

Result

Detailed Steps

Visual Representation

Formulas

ROI Definition

The Return on Investment (ROI) is calculated by subtracting the initial cost of the investment from its final value, dividing by the initial cost, and multiplying by 100 to express it as a percentage:

ROI (%) = [(Final Value – Initial Cost) ÷ Initial Cost] × 100

Annualized ROI Definition

The Annualized ROI accounts for the investment duration, providing the average annual return:

Annualized ROI (%) = [(Final Value ÷ Initial Cost)^(1 ÷ Years) – 1] × 100

Interpretation

  • ROI > 10%: Strong return, indicating a highly profitable investment.
  • ROI between 5% and 10%: Good return, considered reasonable for most investments.
  • ROI between 0% and 5%: Positive but modest return, may not justify the risk in some cases.
  • ROI < 0%: Negative return, indicating a loss on the investment.

A positive ROI, particularly above 5-7%, is generally considered a good investment, though expectations vary by industry and risk level. Annualized ROI helps compare investments of different durations.

How to Use the ROI Calculator

  1. Enter the initial cost of the investment (e.g., $10,000).
  2. Enter the final value of the investment (e.g., $12,000).
  3. Choose the duration input type: “Use Dates” or “Use Investment Length”.
  4. If using dates, enter the start and end dates. If using length, enter the investment duration in years (e.g., 3).
  5. Select your preferred display mode (Standard, Step by Step, or Chart).
  6. Click the “Calculate” button.
  7. View your results, including Investment Gain, ROI, Annualized ROI, Investment Length, and interpretation.

Frequently Asked Questions (FAQs)

What is Return on Investment (ROI)?

ROI is a performance measure used to evaluate the efficiency or profitability of an investment. It is calculated by dividing the net profit (final value minus initial cost) by the initial cost and expressing it as a percentage.

What is Annualized ROI?

Annualized ROI calculates the average annual return of an investment, accounting for its duration. It is useful for comparing investments held for different periods.

What is a good ROI?

A good ROI typically ranges between 5% and 10%, with anything above 10% considered strong. However, what constitutes a “good” ROI depends on the investment type, risk level, and industry standards.

What does a negative ROI mean?

A negative ROI indicates that the investment resulted in a loss, meaning the final value was less than the initial cost.

Why is the investment duration important?

The duration of an investment helps contextualize the ROI. A high ROI over a short period is more impressive than the same ROI over a longer period. Annualized ROI uses the duration to provide a standardized annual return metric.