How to Use the ROI Calculator
- Enter the amount you invested.
- Enter the final value or sale price.
- Add any extra costs such as commissions, repairs or closing costs.
- Enter how long you held the investment in years.
- Press Calculate.
Formula
Cost basis = amount invested + additional costs Net profit = final value − cost basis ROI = net profit ÷ cost basis × 100 Annualized ROI = ((final value ÷ cost basis)^(1 ÷ years) − 1) × 100
Example Calculation
You invest $10,000 and sell for $15,000 after 3 years with no extra costs. Profit is $5,000, so ROI is 50%. The annualized ROI is (1.5^(1/3) − 1), about 14.5% per year.
What Is ROI?
Return on investment measures gain or loss relative to cost. It is one of the most common ways to compare investments, from stocks and real estate to equipment and marketing spend.
Total ROI vs Annualized ROI
Total ROI ignores time. Annualized ROI converts the result into a yearly growth rate, making a 3-year deal and a 10-year deal comparable. For periods under a year the annualized number can look extreme, so interpret it cautiously.
What Belongs in the Cost Basis
Include everything you spent to acquire and maintain the investment: purchase price, commissions, closing costs, repairs and fees. Leaving costs out inflates ROI.
Tips
- Add income received (dividends, rent) to the final value.
- Compare ROI to inflation using the inflation calculator.
- Consider risk and liquidity, not only the percentage.
Common Mistakes
- Forgetting transaction costs and taxes.
- Comparing total ROI across different time periods.
- Extrapolating a short-term annualized return into the future.