Return on investment is the most widely used yardstick in finance because it is so simple: how much did you make compared with how much you put in? This calculator gives you that figure, then goes one step further and annualizes it, so a quick flip held for months and a long-term holding owned for years can be compared on equal terms.
How to use the ROI calculator
- Enter the amount invested — the purchase price or initial outlay.
- Enter the amount returned: the sale proceeds or what the investment is worth now.
- Optionally add income received along the way (dividends, interest, rent) and extra costs (commissions, fees, improvements).
- Describe the holding period, either as a length in years, months or days, or with purchase and sale dates.
ROI formulas
Here value received is the amount returned plus any income, and cost is the amount invested plus extra costs. To compare holding periods, the calculator annualizes the result:
where t is the holding period in years (days ÷ 365.25 when you enter dates).
Worked example
You bought shares for $15,000 and sold them 4 years later for $21,800.
- Net gain: $21,800 − $15,000 = $6,800
- ROI: $6,800 ÷ $15,000 = 45.33%
- Annualized: 1.45331/4 − 1 = 9.80% a year
Now add the details: you paid $200 in commissions and collected $600 in dividends. Cost becomes $15,200 and value received $22,400, so the net gain is $7,200, the ROI rises to 47.37% and the annualized ROI to 10.18%.
Comparing returns of different lengths
Total ROI alone can mislead. Which is better: a 15% gain in 9 months or a 30% gain in 3 years? Annualizing settles it — the first works out to about 20.48% a year, the second to 9.14% a year. The table under the calculator shows how the same total return translates into very different yearly rates depending on how long it took:
| Holding period | Annualized rate for a 45.33% total return |
|---|---|
| 1 year | 45.33% |
| 2 years | 20.55% |
| 3 years | 13.27% |
| 5 years | 7.76% |
| 10 years | 3.81% |
| 20 years | 1.89% |
Where ROI falls short
- Timing of cash flows. ROI treats all money as if it went in on day one. For regular contributions or staged spending, the IRR calculator gives a time-weighted answer.
- Risk. Two investments with the same ROI can carry very different chances of loss.
- Opportunity cost. A positive ROI can still be a poor choice if the money would have earned more elsewhere; the NPV calculator builds that comparison in by discounting at your required return.
- Inflation. A 10% ROI over five years with 3% inflation is a small real gain.
ROI also works outside investing — for a marketing campaign, an energy-efficiency upgrade or a training program — as long as you can put a dollar figure on both the cost and the benefit. For growth between two values without any extra cash flows, the CAGR calculator is the closest relative.
Results are estimates based on the figures you enter and are not financial or tax advice.
Frequently asked questions
What is the ROI formula?
ROI = (value received − amount invested) ÷ amount invested × 100. If you invest $15,000 and get back $21,800, ROI = $6,800 ÷ $15,000 = 45.33%.
What is annualized ROI?
It converts a total return into an equivalent yearly compound rate: (1 + ROI)^(1 ÷ years) − 1. A 45.33% return over 4 years is about 9.80% a year, which lets you compare investments held for different lengths of time.
Should I include fees, taxes and income?
Include anything that changes what you put in or took out. Commissions, closing costs and repairs belong in costs; dividends, interest and rent you collected belong in income. Taxes can be included too if you want an after-tax ROI.
Why can a short holding period show a huge annualized ROI?
Annualizing assumes the same pace continues for a full year and compounds. A 15% gain in 9 months annualizes to about 20.5%, and a 10% gain in one month would annualize to over 200%. Treat annualized figures for short periods with caution.
When should I use IRR instead of ROI?
When money goes in or comes out at several different times — monthly contributions, staged investments, irregular distributions. ROI assumes everything was invested at the start; IRR accounts for when each cash flow happened.