How ROI is calculated
ROI divides net profit by total cost. Annualised ROI (CAGR) spreads the return evenly over the holding period: (total value ÷ total cost)^(1 ÷ years) − 1.
ROI = (Final + Income − Invested − Costs) ÷ (Invested + Costs) × 100
- Net profit is the final value plus income received, minus the amount invested and extra costs.
- ROI divides that profit by the total cost: the amount invested plus extra costs.
- Annualised ROI compounds the return over the holding period: (total value ÷ total cost)^(1 ÷ years) − 1.
- With start and end dates, the period is the actual day count divided by 365.2425, the average Gregorian year.
- Annualising a period under 1 year can exaggerate the yearly figure.
- ROI ignores the timing of cash flows. For regular deposits, use the Compound Interest Calculator.
Worked example: 1,000 growing to 1,500 is a 50% ROI. Over 3 years, that is 14.47% per year annualised.
Popular ROI examples
| Invested | Returned | Years | Months | ROI | Annualised ROI (CAGR) | Income |
|---|---|---|---|---|---|---|
| 1,000 | 1,500 | 3 | 0 | 50.00% | 14.47% per year | 0.00 |
| 10,000 | 12,000 | 2 | 0 | 20.00% | 9.54% per year | 0.00 |
| 5,000 | 4,000 | 1 | 0 | -20.00% | -20.00% per year | 0.00 |
| 2,000 | 2,300 | 1 | 0 | 20.00% | 20.00% per year | 100.00 |
| 1,000 | 1,500 | 0 | 6 | 50.00% | 125.00% per year | 0.00 |
Swipe the table sideways to see the rest.
Things to consider
- Include every cost, such as fees and maintenance, for an honest figure.
- Count dividends or rent received along the way as income.
- Use annualised ROI to compare investments held for different lengths.
- Treat annualised figures for short periods with care.
Frequently asked questions
What is ROI?
Return on investment measures profit against what you put in, as a percentage. It works for shares, property, projects and marketing spend.
What is the ROI formula?
ROI = (final value + income − amount invested − costs) ÷ (amount invested + costs) × 100. Costs and income both count, so the figure reflects what you actually paid and received.
How is ROI different from annualised ROI?
ROI is the total return over the whole period. Annualised ROI, or CAGR, spreads it evenly over each year, so investments held for different lengths can be compared.
What counts as a good ROI?
There is no single good figure. It depends on risk, the timeframe and what alternatives earn. Compare like with like, and remember higher expected returns usually come with higher risk.
Can ROI be negative?
Yes. A negative ROI means the investment lost money: the total value came out below the total cost.
How is ROI used in marketing and business?
Businesses use ROI to compare spending options, such as campaigns or equipment. Estimate the return the spend brought in, subtract the spend, and divide by the spend.
Is this financial advice?
Not financial advice. ROI ignores the timing of cash flows; for regular deposits, use the Compound Interest Calculator.
Results are estimates for general information only, not financial, medical or professional advice.