ROI Calculator
Calculate the return on investment (ROI) for any investment. Enter your initial and final values to see total and annualized returns.
Turning $5,000 into $7,500 over three years is a 50% total ROI — but only a 14.47% annualised return, because the simple version ignores the time the money was tied up.
Calculator
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How This Calculator Works
ROI (Return on Investment) is calculated as:
ROI = (Final Value - Initial Value) / Initial Value × 100
Annualized ROI shows the equivalent yearly return:
Annual ROI = (Final/Initial)^(1/years) - 1
Worked example
Using the defaults — $5,000 invested, growing to $7,500 over 3 years:
Annualised = (Final ÷ Initial)^(1/n) − 1
Find the profit. $7,500 − $5,000 = $2,500. This is the absolute gain in dollars.
Express it against the capital used. $2,500 ÷ $5,000 = 50%. That is the total ROI, and it is the figure most often quoted because it is the simplest to compute.
Annualise it. (1.5)^(1/3) = 1.1447, so the annualised return is 14.47%. This is the constant annual rate that would take $5,000 to $7,500 in three years, and it is the only figure that can be compared with a different investment held for a different period.
See why the total figure misleads. A 50% return sounds better than a 14.47% one, but a bond paying 6% a year would deliver 19.1% over the same three years. The comparison only becomes visible once both are annualised: 14.47% against 6%.
Enter 5000, 7500 and 3 above to reproduce the 50% and 14.47% figures. ROI ignores the timing of any intermediate cash flows; if money went in or came out partway through, the money-weighted return — IRR or XIRR — is the correct measure.
The same 50% total return over different periods
A total return is meaningless without the period. Only the annualised column can be compared across investments.
| Holding period | Total ROI | Annualised ROI | Equivalent 6% bond over the same period | Verdict |
|---|---|---|---|---|
| 6 months | 50% | 125.00% | 2.96% | Far ahead |
| 1 year | 50% | 50.00% | 6.00% | Far ahead |
| 3 years (default) | 50% | 14.47% | 19.10% | Behind the bond |
| 5 years | 50% | 8.45% | 33.82% | Well behind |
| 10 years | 50% | 4.14% | 79.08% | Losing to a bond |
Every row ends at the same $7,500, yet the annualised return ranges from 125% to 4.14%. An investment that returns 50% over ten years has underperformed a savings bond, and the total-return figure conceals that completely.
Common mistakes with this calculation
- Comparing total returns across different holding periods. A 30% return over six months is not worse than a 40% return over three years. Annualise both and the first is 69% while the second is 11.9%. Always convert to an annual rate before comparing.
- Ignoring the costs that were deducted along the way. ROI should be computed on net proceeds. Commissions, platform fees, advisory charges, and tax all reduce the return. A 50% gross return over five years after a 1% annual fee is closer to 8.45% net than the headline suggests — and less once tax is applied.
- Forgetting the risk that produced the return. A 14.47% annualised return from a concentrated single stock is not comparable to 14.47% from a diversified index fund. Return without a risk measure says very little about whether the investment was a good decision, only that it worked.
- Using ROI for irregular cash flows. ROI assumes a single sum in and a single sum out. If you added money in year two and withdrew some in year four, the simple formula is wrong. Use IRR or XIRR, which weight each cash flow by the time it was invested.
When this calculator does not apply
- It assumes a single initial investment and a single final value, with nothing added or removed in between.
- It has no time dimension of its own. The total percentage must be annualised before it can be compared with anything.
- It says nothing about risk, volatility or the path the investment took.
- It excludes tax and transaction costs unless they are already reflected in the final value.
- It assumes the final value is realisable. An illiquid holding marked at a valuation has not produced a return until the position is sold.
Frequently Asked Questions
What is a good ROI?
For stock market investments, a 7-10% annual ROI is considered good over the long term. For businesses, 15%+ is typically targeted. ROI varies by investment type and risk.
Why does annualized ROI matter?
A 50% total ROI over 10 years is very different from 50% over 1 year. Annualized ROI normalizes returns so you can compare investments held for different periods.
Sources & Methodology
This calculator uses standard financial formulas. See our methodology page for the full formula derivation.
- Return on Investment — Investor Glossary US Securities and Exchange Commission
- Mutual Fund and ETF Fees and Expenses US Securities and Exchange Commission
- Compound Interest Calculator US Securities and Exchange Commission
- Financial Accounts of the United States Federal Reserve
- Investor Bulletins US Securities and Exchange Commission
Last reviewed .
Key takeaways
- $5,000 to $7,500 over three years is a 50% total ROI and a 14.47% annualised return.
- A 50% return over ten years annualises to just 4.14%, less than a savings bond.
- Never compare returns over different periods without annualising first.
- Use IRR or XIRR when cash flows are irregular; simple ROI assumes one in and one out.
- Return without a risk measure is an incomplete answer.