ROI Calculator

ROI (Return on Investment) measures the profitability of an investment as a percentage. It is calculated by dividing the net profit (Final Value minus Initial Investment) by the Initial Investment, then multiplying by 100. For example, if you invest $10,000 and it grows to $15,000, your ROI is ((15,000 - 10,000) / 10,000) x 100 = 50%.

Annualized ROI adjusts the total return to reflect a yearly rate, making it easier to compare investments held for different time periods. A 50% return over 5 years is very different from 50% over 1 year. Annualized ROI uses the formula ((Final / Initial)^(1/years) - 1) x 100 to normalize returns to a per-year basis.

A "good" ROI depends on the type of investment and the level of risk. The stock market has historically returned about 7-10% annually after inflation. Real estate typically returns 8-12% annually. For business investments, an ROI of 15-30% or higher is often considered good. Always compare ROI against alternatives with similar risk profiles.

ROI does not account for the time value of money, risk, inflation, or opportunity cost. It also does not consider cash flow timing. Two investments with the same ROI could have very different risk profiles. For more comprehensive analysis, consider using metrics like NPV (Net Present Value) or IRR (Internal Rate of Return) alongside ROI.

Use ROI for quick, straightforward comparisons of investment profitability. Use IRR when comparing projects with different cash flow patterns. Use NPV when you need to account for the time value of money. Use payback period when cash flow recovery timing is critical. ROI is best as a starting point for evaluation, not the sole decision-making metric.