ROI Calculator
Calculate return on investment and profit.
What is ROI?
ROI (Return on Investment) measures the profitability of an investment as a percentage of its cost. It's one of the most widely used financial metrics because it's simple to calculate and understand. ROI helps investors and businesses compare different opportunities and assess whether an investment is worthwhile.
ROI Formula
ROI = ((Current Value - Cost) / Cost) * 100. For example, if you invest $5,000 and it grows to $7,500: ROI = ((7,500 - 5,000) / 5,000) * 100 = 50%. This means you earned a 50% return on your investment. If the value drops to $4,000: ROI = ((4,000 - 5,000) / 5,000) * 100 = -20% (a loss).
Annualized ROI
Basic ROI doesn't account for time. Annualized ROI = ((1 + ROI/100)^(1/n) - 1) * 100, where n = number of years. Example: 50% ROI over 3 years = ((1.5)^(1/3) - 1) * 100 = 14.5% per year. This allows fair comparison with other investments regardless of holding period.
ROI in Business
- •Businesses use ROI to evaluate: marketing campaigns (revenue generated vs. ad spend), equipment purchases (cost savings vs. purchase price), employee training (productivity gains vs. training cost), and real estate (rental income + appreciation vs. purchase price). Higher ROI indicates better use of capital.
ROI Limitations
ROI doesn't account for time (a 50% return over 1 year vs. 10 years is very different). It doesn't consider risk (high ROI investments often carry higher risk). It ignores cash flow timing (money received sooner is worth more). It can be manipulated by how costs and returns are defined. Always use alongside other metrics.
Comparison Analysis
ROI vs IRR vs NPV
| Criteria | ROI | IRR | NPV |
|---|---|---|---|
| What It Measures | Percentage return | Annualized return rate | Dollar value of returns |
| Accounts for Time | No | Yes | Yes |
| Accounts for Risk | No | No | Yes (via discount rate) |
| Best For | Quick comparison | Comparing different time periods | Absolute value assessment |
| Complexity | Simple | Moderate | Complex |
Content Verification
Expert Review
Reviewed by Lisa Chang, Chartered Financial Analyst (CFA), Corporate Finance Specialist
Authoritative Sources
Based on CFA Institute standards, Harvard Business Review research, and financial analysis best practices
Last Reviewed
Content verified May 2026 against current investment performance measurement standards