ROI Calculator
ROI Calculator
What is return on investment?
Return on investment, or ROI, is the gain or loss on an investment expressed as a percentage of what was put in. If you invest 10000 and get back 12500, the gain is 2500, and 2500 divided by 10000 is 25 percent, so the ROI is 25 percent. That single ratio is why ROI is used everywhere: it lets you compare a small investment and a large one on the same scale, because it divides the gain by the size of the stake. What ROI does not do, on its own, is account for time, and that gap is where most misreadings begin.
How to use this ROI calculator
Enter the amount invested, then the amount returned: the sale price or current value, plus any income received along the way, such as dividends or rent, and minus any selling costs you want included. Enter the years held if you know them, and press Calculate ROI. The tool gives the net gain or loss in currency units, the total ROI as a percentage, and, when years are entered, the annualized ROI as a percentage per year. If you leave years blank, the annualized line tells you to enter years, rather than guessing. Keep the two amounts in the same currency, and include the same costs on both sides: buying costs belong in the amount invested, selling costs come off the amount returned.
A worked example from the live tool
Investing 10000 and receiving 12500 after 2 years gives a net gain of 2500.00, a total ROI of 25.00 percent, and an annualized ROI of 11.80 percent on the live tool. The steps are: net gain is 12500 minus 10000, which is 2500; total ROI is 2500 divided by 10000 times 100, which is 25.00 percent; annualized ROI is (12500 divided by 10000) raised to the power (1 divided by 2), minus 1, times 100, which is the square root of 1.25 minus 1, which is 0.1180, or 11.80 percent. A second example, 20000 invested and 26000 returned after 3 years, gives a net gain of 6000.00, a total ROI of 30.00 percent, and an annualized ROI of 9.14 percent. Both examples are live tool results, and both can be checked by hand from the formulas below.
How the maths works
Total ROI is simple division: ROI = (amount returned minus amount invested) divided by amount invested, times 100. Annualized ROI is the compound annual growth rate: annualized ROI = ((amount returned divided by amount invested) raised to the power (1 divided by years) minus 1), times 100. The power is the key: it asks what steady yearly rate, compounded each year, would grow the invested amount into the returned amount over the holding period. That is why annualized ROI is not total ROI divided by years. Dividing 25 percent by 2 years gives 12.50 percent a year, but the correct annualized figure is 11.80 percent, because compounding means each year’s gain also earns in the years after: 11.80 percent compounded for 2 years gives 1.1180 squared, which is 1.25, exactly the 25 percent total. The simple division overstates the yearly rate whenever the total is positive, and the gap grows with the size of the gain and the length of the hold.
The same gain at different holding periods
One total gain means very different things over different periods. Holding the 30 percent total from the second worked example fixed and varying only the years gives:
| Years held | Total ROI | Annualized ROI |
|---|---|---|
| 1 | 30.00 percent | 30.00 percent per year |
| 2 | 30.00 percent | 14.02 percent per year |
| 3 | 30.00 percent | 9.14 percent per year |
| 5 | 30.00 percent | 5.39 percent per year |
| 10 | 30.00 percent | 2.66 percent per year |
A 30 percent gain in one year is a strong result; the same 30 percent spread over ten years is 2.66 percent a year, below many savings rates. This table is the reason annualized ROI exists: total ROI alone cannot compare investments held for different lengths of time, and any comparison that uses only totals will favour long holds unfairly. When you compare two opportunities, compare their annualized figures, and check that both were computed over the same kind of period, with the same costs included.
What ROI leaves out
ROI leaves out risk, which is its largest blind spot. Two investments can share an ROI of 25 percent while one swung wildly and the other moved steadily, and ROI will not distinguish them. It leaves out taxes and fees unless you put them into the two amounts yourself, so a pre-tax ROI and an after-tax ROI for the same investment will differ. It leaves out inflation: a 25 percent gain over a period when prices rose 20 percent is a much smaller real gain than the same 25 percent when prices were flat. It leaves out timing within the period, because it only sees one amount in and one amount out; regular deposits, withdrawals, or income taken during the hold are not modelled, and for those cases a cash-flow method is the right tool. Finally, a past ROI says nothing about the future: an annualized figure computed from history is a description of what happened, not a promise of what comes next.
ROI, profit and payback: three different answers
Net gain answers “how much money did I make”, in currency units. Total ROI answers “how large was that gain relative to my stake”, as a percentage. Annualized ROI answers “how fast did it grow each year”, as a percentage per year. A business example shows why all three matter: a project that costs 20000 and returns 26000 after 3 years has a net gain of 6000, a total ROI of 30 percent, and an annualized ROI of 9.14 percent, but if the same project also saved 500 a month in running costs, those savings belong in the amount returned, or the ROI understates the project. For a leveraged purchase, such as a property bought with a mortgage, ROI should be computed on the capital actually invested, not on the total asset value, because the loan is not your money at risk in the same sense. State which basis you used whenever you quote an ROI, or two people will compute different figures for the same deal and both will be right on their own basis.
Common mistakes
The most common mistake is dividing total ROI by years instead of compounding, which overstates the yearly rate: 25 percent over 2 years is 11.80 percent a year, not 12.50 percent. The second is comparing total ROIs across different holding periods, which favours long holds. The third is leaving costs, taxes or income out of one side only, so the two amounts are not on the same basis. The fourth is treating a projected ROI as a certain one: a forecast return is an assumption, and the ROI computed from it inherits all of that assumption’s uncertainty. The fifth is quoting ROI without stating whether it is total or annualized, which invites exactly the confusion this page separates.
Limits you should know
This tool computes ROI for one amount invested and one amount returned, with an optional holding period. It does not model deposits, withdrawals, interim cash flows, taxes, fees beyond what you include in the two amounts, inflation, or risk, and it does not give financial advice. If a decision depends on the figure, check it with a qualified financial professional, and confirm the tax treatment in your own jurisdiction before relying on it. Results are arithmetic, not financial advice.
Privacy note
The calculation runs in your browser. The amounts you type are not uploaded or stored by this tool. If a result looks wrong, use the Contact page and include the amounts you entered, so the error can be repeated.
Related tools
Try the compound interest calculator for growth over time with compounding, the loan calculator for borrowing costs, the percentage calculator for shares and changes, and the calculators hub for the full set.
How do I calculate ROI?
Subtract the amount invested from the amount returned to get net gain, then divide net gain by the amount invested and multiply by 100. Investing 10000 and receiving 12500 gives a gain of 2500 and an ROI of 25 percent.
What is the ROI on 10000 invested and 12500 returned after 2 years?
Total ROI is 25.00 percent, and annualized ROI is 11.80 percent per year. The annualized figure is the square root of 1.25 minus 1, because 11.80 percent compounded for 2 years gives the 25 percent total.
What is the difference between total ROI and annualized ROI?
Total ROI is the whole gain as a percentage of the stake, with no time dimension. Annualized ROI converts that gain into a steady yearly rate, so investments held for different periods can be compared fairly.
Why is annualized ROI not total ROI divided by years?
Because growth compounds. Dividing 25 percent by 2 years gives 12.50 percent, but the correct yearly rate is 11.80 percent, since 11.80 percent compounded over 2 years reaches 25 percent, while 12.50 percent compounded would overshoot it.
Can ROI be negative?
Yes. If the amount returned is lower than the amount invested, net gain is negative and ROI is negative. Investing 5000 and receiving 4250 gives a loss of 750 and an ROI of -15.00 percent.
Does ROI account for risk, taxes or inflation?
No, not on its own. It only compares the two amounts you enter. Include taxes and fees in those amounts if you want them reflected, adjust separately for inflation, and assess risk separately, because two investments can share an ROI with very different risk.