What is ROI?
ROI or Return on Investment measures how much you have gained or lost on an investment compared with the amount you put in. It is expressed as a percentage, which makes it easy to compare investments of different sizes.
A positive ROI means the investment made money; a negative ROI means it lost money.
ROI on its own does not consider how long you held the investment. That is why this calculator also shows the annualized ROI, the equivalent yearly return.
Fun fact
A 60% ROI sounds impressive, but over 5 years it works out to under 10% a year. Annualized ROI helps you see the real picture.
What is an ROI Calculator?
An ROI calculator works out your investment gain, your total ROI and your annualized ROI from the amount you invested, the amount you got back and how long you held the investment.
Why you should use an ROI Calculator?
- Quick results: See your gain and returns as percentages instantly.
- Helps in comparison: Compare investments of different sizes and holding periods on the same basis.
- Measure performance: Check whether an investment has delivered the returns you expected.
How Does an ROI Calculator Work?
The ROI calculator works on the following inputs:
- Amount Invested (I): The amount you put into the investment.
- Amount Returned (F): The amount you got back, or its value today.
- Time Period (N): Number of years you held the investment.
The ROI Calculator relies on the following formulas:
ROI = (F – I) ÷ I × 100
Annualized ROI = [(F ÷ I)^(1 ÷ N) – 1] × 100
- I
- Amount Invested
- F
- Amount Returned
- N
- Time Period in years
Let’s work through an example for better understanding.
Formula to Calculate ROI with an Example
Consider an example for a better understanding.
- Amount Invested: ₹1,00,000
- Amount Returned: ₹1,50,000
- Time Period: 3 years
Using the formulas:
ROI = (1,50,000 – 1,00,000) ÷ 1,00,000 × 100
Annualized ROI = [(1,50,000 ÷ 1,00,000)^(1 ÷ 3) – 1] × 100
After calculation, your investment gain is ₹50,000, your ROI is 50% and your annualized ROI is approximately 14.47%.
What are the benefits of calculating ROI?
- Simple measure: A single percentage tells you how well an investment has performed.
- Fair comparison: Annualized ROI lets you compare investments held for different lengths of time.
- Better decisions: Knowing your returns helps you decide where to invest next.