Quick Answer
ROI (Return on Investment) is calculated as [(Final Value − Initial Investment) ÷ Initial Investment] × 100, expressed as a percentage. For investments held over multiple years, CAGR (Compound Annual Growth Rate) shows the equivalent smooth annual return.
What Is ROI?
Return on Investment (ROI) is the most widely used measure of how profitable an investment has been, expressed as a simple percentage of the original amount invested. A 50% ROI means the investment gained half its original value; a -20% ROI means it lost a fifth of its value.
ROI alone doesn't account for time, a 50% return over 1 year is a very different result from a 50% return over 10 years. That's where CAGR (Compound Annual Growth Rate) comes in: it converts a total return over any holding period into the single steady annual growth rate that would have produced the same result, making it possible to fairly compare investments held for different lengths of time.
ROI and CAGR are used across every type of investment, stocks, real estate, business projects, mutual funds, because the underlying question is always the same: how much did this investment actually grow my money, and how does that compare to other opportunities?
How to Use
- 1Enter your initial investment amount.
- 2Enter the final (current or exit) value of the investment.
- 3Enter the number of years the investment was held, to calculate CAGR.
- 4The calculator instantly shows total ROI percentage, net gain or loss, and annualized CAGR.
Formula
ROI = [(Final Value − Initial Investment) ÷ Initial Investment] × 100CAGR = [(Final Value ÷ Initial Investment)^(1/Years) − 1] × 100Example: 10,000 invested, grown to 15,000 over 3 years
- Net gain = 15,000 − 10,000 = 5,000
- ROI = 5,000 ÷ 10,000 × 100 = 50%
- CAGR = (15,000 ÷ 10,000)^(1/3) − 1 = (1.5)^0.333 − 1 ≈ 14.47%
Tips & Things to Know
- ROI by itself ignores time, always check the holding period, or better, compare CAGR, before judging whether a return is actually good.
- ROI as commonly calculated doesn't subtract fees, taxes, or transaction costs, for a true net return, subtract these from the final value before calculating.
- A high ROI over a very short period (a few weeks or months) usually carries far more risk than the same ROI earned steadily over several years, return and risk generally move together.
- When comparing two investments, always compare CAGR rather than raw ROI if the holding periods are different, a 30% ROI over 1 year (≈30% CAGR) is a far stronger result than 30% over 5 years (≈5.4% CAGR).
- For investments with cash added or withdrawn partway through, a more advanced metric like XIRR gives a more accurate picture than simple ROI or CAGR.