Return on Investment (ROI) Calculator
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What is Return on Investment (ROI)?
In finance, Return on Investment, usually abbreviated as ROI, is a common, widespread metric used to evaluate the forecasted profitability on different investments. The metric can be applied to anything from stocks, real estate, employees, to even a sheep farm; anything that has a cost with the potential to derive gains from can have an ROI assigned to it. While much more intricate formulas exist, ROI is lauded for its simplicity and broad usage as a quick-and-dirty method.
The Basic Formula
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
As a most basic example, if you invested $50,000 into a project and your total profits to date sum up to $70,000, your ROI would be 40%.
Difficulty in Usage
The biggest nuance with ROI is that there is no timeframe involved. An ROI of 50% over one year is much better than the same ROI over ten years. This is why it's essential to supplement it with other, more accurate measures.
Annualized ROI
Our ROI Calculator includes an Investment Time input to hurdle this weakness by using annualized ROI, which is a rate normally more meaningful for comparison. When comparing the results of two calculations, the annualized ROI figure is often more useful than the standard ROI figure.