ROI Calculator

Welcome to the ROI Calculator, a comprehensive tool for measuring investment performance. Whether you're evaluating stocks, real estate, business ventures, or any other investment, this calculator provides ROI (Return on Investment), annualized ROI, and CAGR (Compound Annual Growth Rate) with detailed step-by-step calculations and performance benchmarking.

What is ROI (Return on Investment)?

Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment. It measures the gain or loss generated relative to the amount invested, expressed as a percentage. ROI is one of the most widely used metrics in finance because of its simplicity and versatility.

A positive ROI indicates a profitable investment, while a negative ROI indicates a loss. The higher the ROI, the more profitable the investment relative to its cost.

Understanding Annualized ROI vs. CAGR

Simple Annualized ROI

Simple annualized ROI extrapolates your return to a one-year period using linear calculation:

This is useful for short-term investments where compounding effects are minimal.

CAGR (Compound Annual Growth Rate)

CAGR represents the smoothed annual growth rate assuming the investment grew at a steady rate:

Where n is the number of years. CAGR is more accurate for multi-year investments as it accounts for compound growth.

ROI Performance Benchmarks

Understanding how your returns compare to market averages helps put your investment performance in context:

How to Use This Calculator

1. Enter your initial investment - The original amount you invested or cost basis.
2. Select investment dates - The start date when you made the investment and end date for measuring returns.
3. Enter the final value - Current market value or sale price, including dividends/distributions received.
4. Calculate and analyze - View your ROI, annualized return, CAGR, and performance rating.

When to Use ROI vs. CAGR

• Use ROI for simple, one-time return calculations or comparing investments of similar duration.
• Use Annualized ROI for short-term investments (under 1 year) to project annual returns.
• Use CAGR for multi-year investments or comparing investments with different holding periods.

Limitations of ROI

• Time factor - Basic ROI doesn't account for how long money was invested. A 20% return over 10 years is very different from 20% over 1 year.
• Risk not included - ROI doesn't reflect the risk taken to achieve the return.
• Cash flow timing - ROI assumes a single investment; for multiple contributions, IRR (Internal Rate of Return) may be more appropriate.
• Inflation - ROI shows nominal returns, not real (inflation-adjusted) returns.

Frequently Asked Questions

What is ROI (Return on Investment)?

ROI (Return on Investment) is a performance measure used to evaluate the efficiency of an investment. It calculates the percentage return by dividing the gain (or loss) by the initial investment cost. The formula is: ROI = ((Final Value - Initial Investment) / Initial Investment) × 100%. A positive ROI indicates a profit, while a negative ROI indicates a loss.

What is the difference between ROI and CAGR?

ROI shows the total percentage gain or loss on an investment, while CAGR (Compound Annual Growth Rate) shows the smoothed annual growth rate that would result in the same final value if compounded yearly. For multi-year investments, CAGR is more useful for comparison because it accounts for the time value of money and compounding effects.

What is a good ROI?

A "good" ROI depends on the investment type and risk level. The S&P 500 has historically returned about 10% annually. Generally: >15% annual return is excellent, 8-15% is good, 3-8% is moderate, and <3% may not outpace inflation. Higher-risk investments typically require higher expected returns to compensate for the risk.

How do I calculate annualized ROI?

Simple Annualized ROI = ROI × (365 / Days Invested). For example, a 10% ROI over 6 months equals approximately 20% annualized. However, for longer periods, CAGR provides a more accurate annualized return: CAGR = (Final Value / Initial Investment)^(1/years) - 1.

Why is my CAGR different from my annualized ROI?

Annualized ROI uses simple linear extrapolation, while CAGR accounts for compound growth. CAGR assumes your returns compound annually, which is more realistic for long-term investments. For periods under one year, the difference is minimal, but for multi-year investments, CAGR is typically lower and more accurate.

Additional Resources

• Return on Investment - Wikipedia
• Compound Annual Growth Rate (CAGR) - Wikipedia