Home›ROI Calculator

ROI Calculator

Total return, net profit, multiple, and the annualised rate that actually lets you compare two investments.

Return on investment
—
—
Net profit—
Multiple on invested capital—
Annualised return (CAGR)—
Total return after costs—
Simple average per year—

The formulas

ROI = (Final value - Initial investment) / Initial investment x 100

CAGR = (Final / Initial) ^ (1 / Years) - 1

Multiple = Final value / Initial investment

ROI answers "how much did I make in total". CAGR answers "how fast did it grow per year". Only the second one is comparable across different time periods.

Worked example

$10,000 invested, worth $15,000 after 5 years:

This is the most common mistake in investing. Dividing total ROI by years gives 10%, but the actual compound growth is 8.45%. Why? Because the 10% figure ignores compounding: 10% a year for five years turns $10,000 into $16,105, not $15,000.

ROI versus CAGR: when each applies

SituationUseWhy
Single deal, one exitROI and multipleYou care about total cash returned
Comparing holdings of different lengthsCAGRPuts everything on a per-year basis
Comparing against a savings rateCAGRSavings rates are quoted annually
Venture or private equityMultipleIndustry convention, ignores timing
Property with rental incomeCash-on-cash plus IRRTiming of cash flows matters

Common mistakes

  1. Dividing ROI by years. Gets you an arithmetic average, not a compound rate. Over long periods the gap becomes large.
  2. Ignoring costs. Trading fees, taxes, maintenance and closing costs are real. Add them or the ROI is fiction.
  3. Forgetting inflation. A 5% nominal return with 3% inflation is about 1.9% real. Over 20 years that difference is enormous.
  4. Comparing different risk levels. A 12% return on a speculative venture and 7% on a government bond are not comparable without adjusting for risk.
  5. Using ROI for cash-flow timing. ROI says nothing about when money arrives. For irregular cash flows you need IRR.

Frequently asked questions

What is the difference between ROI and CAGR?
ROI is total return over the whole period. CAGR is the constant yearly rate that would produce the same end value. A 50 percent ROI over five years is a CAGR of 8.45 percent, not 10 percent.
Does ROI include costs?
Only if you include them. Fees, taxes, maintenance and transaction costs should be added to the initial investment or subtracted from the final value, otherwise the ROI is overstated.
What is a good ROI?
It depends on risk and the alternative. Compare against a risk-free rate plus a risk premium. A 7 percent annualised return is reasonable for a diversified portfolio; 8 percent on a risky private deal may be poor.
Can ROI be negative?
Yes. If the final value is below the initial investment, ROI is negative. A final value of zero gives minus 100 percent, which is the maximum loss.
When should I use IRR instead?
When money goes in and out at different times. ROI assumes a single investment and a single exit. IRR handles multiple cash flows and reports the annualised rate that makes the net present value zero.

Related tools

Rent vs BuyMonte Carlo and break-even year.
Break-Even CalculatorUnits and revenue to cover fixed costs.
Profit Margin CalculatorMargin, markup and target pricing.