You put 10,000 into something and got 12,500 out. Good result or not?
It depends on how long it took, and that’s the part a simple percentage hides. This ROI calculator gives you both views: the plain return on investment and, if you tell it how long you held on, the annualized figure that lets you compare one investment fairly with another.
How to use the ROI Calculator#
- Enter what you invested. Include fees and costs of buying, since they’re part of what you paid.
- Enter the final value. Use what it’s worth now or what you sold it for.
- Add any extra income (optional). Dividends, interest or rent you received along the way.
- Add the years you held it (optional). With it you also get the annualized return.
- Read the result. You get the ROI, the profit, the return multiple and the return per year.
The formula#
Return on investment compares the gain with the cost, as a percentage.
Invest 10,000 and end with 12,500, and the gain is 2,500, so the ROI is 25 percent. If you also collected 500 in dividends along the way, the gain is 3,000 and the ROI is 30 percent.
It works for losses too. Put in 10,000 and get back 8,000 and you have an ROI of −20 percent.
Why the time you held it matters#
An ROI of 25 percent sounds the same whether it took a year or a decade. It’s nothing like the same. Annualized ROI spreads the gain across the years so you can compare fairly:
Here’s what a 25 percent total gain turns into over different holding periods:
| Years held | Total ROI | Annualized ROI |
|---|---|---|
| 1 | 25% | 25.00% |
| 2 | 25% | 11.80% |
| 3 | 25% | 7.72% |
| 5 | 25% | 4.56% |
| 10 | 25% | 2.26% |
Ten years for 25 percent is about 2.3 percent a year, which a savings account might beat. Never compare two ROI figures without checking the time behind each.
Count every cost#
The most common way ROI flatters you is by leaving costs out. If you bought a rental property, the amount invested isn’t just the price. It includes legal fees, taxes, repairs and any money you put in later. If you ran an advert, it includes your time and the design cost, not only the ad spend. Be strict about this and the number you get will be one you can trust.
What ROI can’t tell you#
- Risk. A 20 percent return from a steady investment is worth more than the same figure from a gamble.
- When the money came in. Receiving cash early lets you reinvest it. ROI treats all the income as arriving at the end. Measures like IRR handle timing better.
- Inflation. A 3 percent annual return in a year of 5 percent inflation lost purchasing power.
- Tax. The figure shown here is before tax.
Using ROI for decisions#
ROI shines when you’re comparing options on the same footing, such as two marketing campaigns or two pieces of equipment. For savings with a stated rate, the APY calculator and the interest rate calculator are better fits. Use ROI as one input, and ask what could go wrong before you act on it.
Counting income and costs#
The extra income box is for money received along the way, such as rent, dividends or interest, which adds to the return. Costs should reduce it. For a rental property, include purchase taxes, repairs, agent fees, vacant months and loan interest. A property bought for 30 million that sells for 36 million after five years looks like a 20 percent return, but if it also earned 1.5 million a year in rent and cost 2 million in fees and repairs, the real figure changes: (36 + 7.5 − 2 − 30) ÷ 30 = 38.3 percent over five years. Do the sum with all of the money in and out. The compound interest calculator shows what a steady rate would have produced for comparison.
Frequently asked questions#
Subtract the amount invested from the final value (plus any income), divide by the amount invested and multiply by 100. For 10,000 turning into 12,500 the ROI is 25 percent.
It’s the return per year that would produce your total return over the time you held the investment. It lets you compare investments of different lengths.
Not on its own. Look at the time it took, the risk you carried and the costs involved.
Yes. If the investment ends up worth less than you paid, the ROI is negative. Putting in 10,000 and getting back 8,000 is an ROI of −20 percent.
Yes. Fees and costs are part of what you paid, and leaving them out overstates your return.
It depends on the risk and the time. A government bond or savings account may return a few percent a year with little risk, shares have historically returned more with large swings, and a new business can return nothing or many times the money invested. Compare with inflation and with what else you could have done with the same money.
No. Profit is a money amount, such as 2,500. ROI is that profit as a share of what you invested, such as 25 percent. A big profit on a big investment can be a smaller return than a small profit on a small one.