How ROI is calculated
Return on investment measures how much you gained relative to what you put in. Subtract the amount invested from the final value to get your net profit, then divide by the amount invested:
ROI = (Final value − Amount invested) ÷ Amount invested × 100
A $1,000 investment that grows to $1,300 has a $300 net profit and a 30% ROI. The same dollar gain on a $3,000 investment is only a 10% ROI — which is why ROI is expressed as a percentage rather than a raw dollar amount.
Annualized ROI and why it matters
Total ROI ignores time, but time is everything in investing. Annualized ROI restates the return as an equivalent compound yearly rate so you can compare investments of different lengths:
Annualized ROI = ((Final ÷ Invested)1 ÷ years − 1) × 100
A 30% total return earned in one year is excellent; the same 30% spread over five years is only about 5.4% per year — close to what a savings bond might pay. Always compare investments on an annualized basis.
What to include in the numbers
For a realistic result, use your true all-in cost as the amount invested — purchase price plus any commissions or fees — and the actual net proceeds you received as the final value. If you want after-tax ROI, subtract taxes from the final value first.
Frequently asked questions
How do you calculate ROI?
Return on investment is the net gain divided by the amount invested, shown as a percentage. Subtract the initial cost from the final value to get your net profit, divide that by the initial cost, and multiply by 100. For example, turning $1,000 into $1,300 is a $300 gain on $1,000, or a 30% ROI.
What is a good ROI?
It depends on the investment, the risk, and the time involved. Broad stock-market index funds have historically averaged around 7%–10% a year after inflation over long periods. A 30% total ROI is strong if earned in one year but modest if it took ten — which is why annualized ROI matters for comparison.
What is the difference between ROI and annualized ROI?
Plain ROI is the total percentage gain over the whole holding period, ignoring how long it took. Annualized ROI converts that into an equivalent yearly rate using compounding, so you can compare a two-year investment fairly against a five-year one. A 50% total return over five years is only about 8.4% annualized.
Can ROI be negative?
Yes. If the final value is less than what you invested, your net profit is negative and so is your ROI — that represents a loss. A return of −20% means you ended with 80% of what you put in.
Does this ROI calculator account for fees or taxes?
Only if you include them. To get a true net ROI, use your actual out-of-pocket cost (including fees and commissions) as the amount invested, and the after-tax amount you received as the final value. The formula itself does not add fees or taxes for you.
Disclaimer: This calculator provides a simple ROI estimate and does not account for cash flows during the holding period, inflation, taxes, or fees unless you build them into the inputs. It is for educational purposes only and is not investment advice.