Return on Investment (ROI) Calculator
Calculate both simple and annualized ROI for your investments
Understanding Return on Investment (ROI)
Return on Investment (ROI) is a performance metric used to evaluate the efficiency or profitability of an investment. It directly measures the amount of return on a particular investment relative to the investment's cost.
How to Use This Calculator
1. Enter your initial investment amount
2. Input the final value of your investment
3. Specify the investment timeframe in years
4. Include any additional costs associated with the investment
5. Add any periodic cash flows (optional)
The calculator will show both your total ROI and annualized ROI.
ROI Formula Explained
The basic ROI formula is:
ROI = ((Final Value - Total Investment) / Total Investment) × 100
The annualized ROI formula is:
Annualized ROI = (1 + ROI)^(1/n) - 1
where n is the number of years
When to Use ROI
ROI is valuable for:
- Comparing different investment opportunities
- Evaluating the performance of an existing investment
- Making business decisions about resource allocation
- Determining if an investment meets minimum performance requirements
Limitations of ROI
While ROI is a useful metric, it has some limitations:
- It doesn't account for risk factors
- The time value of money isn't considered in simple ROI
- It may not capture all indirect costs or benefits
- Different calculations methods can lead to varying results