ROI Calculator

The formula

Initial investment

Everything you put in, including fees and costs you incurred to make the investment.

Final value

What it is worth or what you received, net of exit costs.

Years

The holding period. Decimals are accepted — eighteen months is 1.5.

Worked example

25,000 invested, worth 41,000 after 4 years.

• Total ROI = (41,000 − 25,000) ÷ 25,000 × 100 = 64.00%
• Ratio = 41,000 ÷ 25,000 = 1.64
• Annualised ROI = (1.64^(1 ÷ 4) − 1) × 100
• = (1.131647 − 1) × 100 = 13.16%

Total ROI 64 percent over the period, which is 13.16 percent a year compounded.

Always read the annualised figure when comparing

Total ROI has no time in it, which makes it useless for comparison and easy to dress up. Sixty-four percent over four years and 64 percent over eighteen months are the same headline and completely different investments — the second is 39.1 percent a year. The annualised line converts both to the same unit. Whenever a return is quoted to you without a period attached, that omission is the thing to ask about.

Why annualised ROI is not total ROI divided by years

Dividing 64 by 4 gives 16 percent, which is too high, because it ignores compounding: earning 13.16 percent on a growing base for four years is what actually produces 64 percent. The calculator takes the fourth root of the growth ratio rather than dividing, so the number it returns is the constant annual rate that would have produced the same ending value.

What belongs in the initial figure

ROI is only as honest as its denominator. Transaction fees, renovation costs, the time you paid someone else for, and any capital added later all belong in the investment side; leaving them out is the single most common way a return gets overstated. On the other side, deduct selling costs and tax from the final value if you want a figure that reflects what you actually keep.

What this measure deliberately ignores

ROI says nothing about risk, about how certain the final value is, or about whether the money was tied up and unavailable. Two investments with identical annualised returns are not equivalent if one could have gone to zero. Use ROI to rank outcomes you have already measured, and judge risk separately rather than assuming the higher number is the better decision.

Common questions

What is a good ROI?

It is only interpretable against alternatives with similar risk and similar lock-up. The comparison worth making is against what the same money would have done in your next-best available option over the same period, after fees and tax. A number quoted without a time period, a risk description and a fee treatment cannot be judged at all.

Why does the calculator require a positive number of years?

The annualised figure raises the growth ratio to the power of one divided by the years. With zero years that division is undefined, and with a negative period the result is meaningless. For a holding period shorter than a year, enter it as a decimal — three months is 0.25.

Can ROI be negative?

Yes. If the final value is below the initial investment, total ROI is negative and the annualised figure is the constant annual rate of loss. The calculator handles this; it only rejects an initial investment of zero or below, since there is nothing to measure a return against.

How is this different from IRR?

This assumes one amount in at the start and one amount out at the end. IRR handles a stream of cash flows arriving at different times, which is what you need when money goes in and out repeatedly. If your investment had one entry and one exit, annualised ROI and IRR give the same answer.