The ROI formula
Return on investment is the gain divided by the cost: ROI = (amount returned − amount invested) ÷ amount invested. Invest $10,000 and get $15,000 back and the ROI is 50%. It is a ratio, so it lets you compare investments of different sizes, and it is negative when the investment lost money. 'Amount returned' should include everything you received — sale proceeds plus dividends, interest or rent collected — net of selling costs; 'amount invested' should include purchase costs and any money added along the way.
| Invested | Returned | Gain / loss | ROI |
|---|---|---|---|
| $10,000 | $8,000 | $-2,000 | -20% |
| $10,000 | $10,500 | $500 | 5% |
| $10,000 | $12,000 | $2,000 | 20% |
| $10,000 | $15,000 | $5,000 | 50% |
| $10,000 | $20,000 | $10,000 | 100% |
| $10,000 | $30,000 | $20,000 | 200% |
Why ROI alone is not enough: time
A 50% return is excellent over one year and unremarkable over ten. Plain ROI ignores how long the money was tied up, so to compare investments held for different periods you need the annualised return — the compound annual growth rate (CAGR) that would produce the same result: annualised = (returned ÷ invested)^(1 ÷ years) − 1. The table shows the same total returns annualised over different holding periods; the calculator reports both figures for every input.
| Total ROI | 1 year | 2 years | 3 years | 5 years | 10 years |
|---|---|---|---|---|---|
| 10% | 10.00% | 4.88% | 3.23% | 1.92% | 0.96% |
| 25% | 25.00% | 11.80% | 7.72% | 4.56% | 2.26% |
| 50% | 50.00% | 22.47% | 14.47% | 8.45% | 4.14% |
| 100% | 100.00% | 41.42% | 25.99% | 14.87% | 7.18% |
| 200% | 200.00% | 73.21% | 44.22% | 24.57% | 11.61% |
A 50% return over different periods
The same $10,000 → $15,000 result looks very different once time is included. Over one year it beats almost any asset class; over ten years it is about 4.1% a year, below the long-run return on a broad stock index and not far above inflation.
| Held for | Total ROI | Annualised |
|---|---|---|
| 1 years | 50% | 50.00% |
| 2 years | 50% | 22.47% |
| 3 years | 50% | 14.47% |
| 5 years | 50% | 8.45% |
| 7 years | 50% | 5.96% |
| 10 years | 50% | 4.14% |
Worked example: a rental property
Real investments have cash flows on both sides. Treat money you put in at any point as part of the amount invested and money you received at any point as part of the amount returned; the calculator then gives a fair total and annualised figure. (When the timing of the flows matters — large amounts early versus late — the internal rate of return handles it exactly; the compound interest calculator's rate mode covers regular contributions.)
| Item | Amount | Note |
|---|---|---|
| Purchase price | $300,000 | |
| Closing and renovation costs | $20,000 | Part of the amount invested |
| Net rent over 5 years | $60,000 | Rent minus expenses, added to returns |
| Sale price after 5 years | $380,000 | |
| Selling costs | $22,800 | 6% commission, deducted from returns |
| Amount invested | $320,000 | |
| Amount returned | $417,200 | 380,000 − 22,800 + 60,000 |
| ROI | 30.4% | |
| Annualised | 5.45% | Over 5 years |
Using dates instead of years
Switch the holding period to dates and enter the purchase and sale dates. The calculator converts the gap to years (365.25-day years) so an investment held from 3 March 2021 to 15 November 2025 is annualised over 4.70 years, not rounded to 5. This matters most for short holdings: a 10% gain over four months is about 33% annualised, over eight months about 15%.
Limits
ROI is before tax; capital-gains tax on the gain reduces the after-tax return, and how much depends on the holding period and your bracket. It does not adjust for risk — a 12% return from a speculative venture and a 12% return from a bond fund are not equivalent — and it does not account for inflation; subtract the inflation rate from the annualised figure for a real return. Finally, it treats all cash in and out as if at the start and end. For irregular flows, an internal-rate-of-return calculation is the right tool.
- ROI = (returned − invested) ÷ invested.
- Annualised return = (returned ÷ invested)^(1 ÷ years) − 1.
- Investment multiple = returned ÷ invested (2× means you doubled your money).
- Real annualised return ≈ annualised return − inflation.