How to Calculate Return on Investment

Quick Answer

Return on investment is the net gain divided by the cost, as a percentage. Take what the investment is worth now (or what you sold it for), subtract what you paid, and divide by what you paid. Turning $10,000 into $15,000 is a $5,000 gain and a 50% ROI. Enter the holding period as well and the calculator adds the annualized return, about 14.5% a year if that gain took three years, which is the number to compare against yearly benchmarks.

How It Works

To calculate ROI from cost and sale price, enter what you paid as the amount invested and the sale proceeds as the final value. The calculator reports the investment return three ways: the net gain in money, the ROI percentage, and, when you supply a holding period, the annualized return. Losses are first-class results. A final value below the cost shows a negative ROI and the loss in money terms, and a final value of zero is an ROI of minus 100%.

The annualized figure is what most ROI tools leave out, and it changes conclusions. ROI by itself ignores time, so a 50% return sounds the same whether it took two years or twenty. Annualizing spreads the growth evenly across the years with compounding taken into account; therefore investments of very different lengths, such as a quick stock trade, a five-year property hold, and a decade in an index fund, land on the same comparable scale.

Reading the Result

The headline number is the ROI percentage over the whole holding period. Net gain restates it in money, which keeps large percentages honest: 50% on $1,000 is $500, not a life event. The annualized return is the figure to judge investment performance with. Broad stock index funds have averaged roughly 7 to 10% a year over long stretches, so an annualized return above that range beat the passive alternative and one below it trailed, whatever the raw ROI says.

ROI Calculator vs Alternatives

ROI and CAGR are two views of the same growth. ROI starts from money in and money out and reports the total percentage change; CAGR expresses that change as a steady yearly rate. The annualized return this calculator shows is exactly the CAGR of your investment; therefore, use the CAGR calculator when you want to explore the rate itself, and this tool when you are starting from cost and proceeds. Neither measure accounts for money added or removed along the way. For example, a portfolio with monthly deposits needs the compound interest calculator instead, because ROI would count the deposits themselves as gains. Spreadsheet formulas can compute all of this too; however, they hide the formula, while a dedicated calculator shows the assumptions next to the result.

Examples

A three-year stock position. For example: input a $10,000 cost and a $15,000 final value, and the output is a 50% ROI. Over three years that annualizes to about 14.5% a year, comfortably ahead of a typical index return.

A five-year property sale. Buying at $200,000 and selling at $260,000 is a 30% ROI, but only about 5.4% a year over five years, before costs. Once you subtract transaction fees and taxes, the annualized figure can fall below what a savings account paid.

A losing trade. A $10,000 position sold at $8,500 is a $1,500 loss and an ROI of minus 15%. Entering the real numbers matters more here than anywhere: rounding losses away is how portfolios look better than they are.

The Formula

ROI% = (V − C) / C × 100

where C is the amount invested and V is the final value. The annualized form for a holding period of t years is ((V / C)^(1/t) − 1) × 100, the constant yearly rate that produces the same overall result with compounding.

Common Mistakes