ROI Calculator
Calculate return on investment and compound annual growth rate.
What ROI Is (and Isn't)
Return on Investment (ROI) is the simplest way to measure how much you gained or lost relative to what you put in. Express it as a percentage and you can compare a $100 lemonade stand to a $10 million warehouse on equal footing — at least in theory. It's the workhorse metric for retail investors, marketers computing campaign ROAS, and small-business owners checking whether a project paid for itself.
ROI has one big honest limitation: it ignores time. A 40% ROI earned in 3 years is obviously better than a 40% ROI earned in 10 years, but the headline number is the same. That's why this calculator displays two numbers side-by-side: Total ROI (the cumulative gain over the whole holding period) and Annualized ROI — also known as CAGR (Compound Annual Growth Rate) — which is the equivalent yearly rate that would have produced the same result. Annualized ROI is the only number you should use to compare investments held for different lengths of time.
This page serves three audiences: retail investors evaluating a buy/sell, marketers and small-business owners computing project ROI, and students or professionals comparing ROI against CAGR, IRR, and NPV. For more rigor with multiple cash flows — for example, a rental property with monthly income — IRR and NPV are the better tools. ROI is still the best single-glance metric for one-shot investments.
The Formulas
Initial— amount of money originally invested (cost basis, including fees if known)Final— value at the end of the holding period (sale proceeds plus any distributions)ROI— total return over the whole period, in percent
t— holding period in years (use decimals for partial years, e.g. 2.5)Annualized ROI— the equivalent compound yearly rate; mathematically identical to CAGR- Rule: never divide total ROI by years — that arithmetic average overstates compound growth
Worked Example — Bob's Sheep Farm
What Is a "Good" ROI? Asset-Class Benchmarks
A good ROI is one that beats a comparable-risk benchmark. Here is the long-run annualized (CAGR) return for major US asset classes, as context for interpreting your own result:
| Asset Class | Long-Run Annualized Return | Source |
|---|---|---|
| S&P 500 (total return, nominal) | ~10.0% | Shiller / Damodaran, 1928–2025 |
| S&P 500 (real, inflation-adjusted) | ~7.0% | Shiller, 1928–2025 |
| US 10-Year Treasury bonds | ~4.9% | Damodaran, 1928–2025 |
| REITs (NAREIT Index) | ~7–9% | NAREIT, 1972–2025 |
| High-yield savings (HYSA) | ~4–5% (2026) | FDIC National Rates |
| Gold (nominal) | ~5% | Damodaran, 1928–2025 |
A 100% total ROI over 10 years is about 7.2% annualized — worse than the S&P 500. Over 2 years it would be 41.4% annualized — spectacular. Same headline, completely different verdict.
Limitations of ROI (the Honest Bit)
ROI is a ratio, not a decision tool. It has four well-known blind spots:
- Ignores risk. A 20% ROI on a concentrated biotech bet is not comparable to 20% on an index fund. ROI treats both identically.
- Ignores time unless annualized. Always compute and report annualized ROI next to total ROI.
- Ignores opportunity cost. The capital could have earned ~10% annualized in an index fund. If your project returns less than that, it may have destroyed value even if ROI is positive.
- Definitional ambiguity. "Cost" can mean purchase price, or price + fees, or price + fees + overhead, or price + fees + overhead + taxes. Different analysts will compute different ROIs for the same project. Always disclose what you included.
How to Use This Calculator
- Enter your initial investment — include all the money you actually put at risk. If you paid commissions or fees, include them in the cost basis for a more honest ROI.
- Enter the final value — the amount you received when you sold, plus any distributions received along the way (dividends, interest, rental income net of expenses).
- Enter the holding period in years. Use decimals for partial years: 2.5 years is allowed. This drives the annualized ROI calculation.
- Read both numbers. Total ROI shows the cumulative gain; annualized ROI (CAGR) shows the equivalent yearly rate.
- Compare to a benchmark. Use the asset-class table above. A 15% annualized ROI beats the S&P 500 long-run average; a 6% annualized ROI does not.
Methodology & Assumptions
- Total ROI uses the standard formula: (Final − Initial) / Initial × 100%.
- Annualized ROI uses the compound-growth formula: (Final/Initial)^(1/years) − 1. Mathematically identical to CAGR.
- Assumes one cash flow in (initial) and one cash flow out (final). For investments with intermediate cash flows, use an IRR calculator.
- Does not deduct taxes or inflation. To estimate real (inflation-adjusted) ROI, subtract ~3% from the annualized figure.
- All math runs locally in your browser; no data leaves your device.
Glossary
- ROI (Return on Investment)
- Total gain or loss divided by the amount invested, expressed as a percentage. Ignores time unless annualized.
- Annualized ROI
- The equivalent yearly compound rate that would produce the same total return over the holding period. Mathematically identical to CAGR.
- CAGR (Compound Annual Growth Rate)
- (Final/Initial)^(1/years) − 1. The standard way to express multi-year returns on a per-year basis.
- IRR (Internal Rate of Return)
- The discount rate that makes the NPV of all cash flows equal zero. Handles multiple cash flows; ROI does not.
- NPV (Net Present Value)
- Sum of all future cash flows discounted to today's dollars. Positive NPV means the project creates value at the chosen discount rate.
- Total return
- Price change plus all distributions (dividends, interest, rent net of expenses). Use this, not price-only, when computing ROI.
- Cap rate
- Real-estate metric: Net Operating Income / purchase price. A ~5% cap rate is typical for residential, ~6–8% for commercial.
- Cash-on-cash return
- Real-estate metric: annual pre-tax cash flow / cash invested. Measures the yield on actual dollars out of pocket, not total property value.
- ROAS (Return on Ad Spend)
- Marketing metric: revenue attributable to an ad campaign divided by the ad spend. A 4:1 ROAS is a 400% ROI.
- Holding-period return (HPR)
- Academic name for total ROI over a specific holding period. Identical concept.
Frequently Asked Questions
ROI measures how much you gained or lost relative to what you invested. Formula: ROI = (Final − Initial) / Initial × 100%. A $10,000 investment that grows to $18,000 has a total ROI of 80%. Expressed as a percentage so you can compare investments of different sizes on equal footing.
Total ROI is the cumulative return, ignoring time. Annualized ROI — also called CAGR — is the equivalent yearly rate: (1 + ROI)^(1/years) − 1. A 40% total ROI over 3 years is only 11.87% annualized. Annualized ROI is the only honest way to compare investments held for different lengths of time.
The S&P 500 has averaged about 10% nominal / 7% real annualized since 1928 (Damodaran). Beating ~10% annualized over a similar period beats the market. Bonds returned ~4.9%, REITs ~7–9%, high-yield savings ~4–5% as of 2026. Good ROI always depends on risk taken.
Use (Final / Initial)^(1/years) − 1. For $10,000 growing to $18,000 over 5 years: (1.8)^(0.2) − 1 = 0.1247 = 12.47% per year. Never divide total ROI by years — that arithmetic average overstates compound growth.
ROI has four blind spots: (1) ignores risk, (2) ignores time unless annualized, (3) ignores opportunity cost, (4) "cost" and "gain" are definitionally ambiguous so different analysts produce different ROIs for the same project. For multiple cash flows, IRR or NPV are usually better.
Marketing ROI: (Revenue − Cost) / Cost × 100%. A $10K campaign producing $35K has 250% ROI. Real-estate ROI includes rental income minus expenses plus price appreciation, divided by total cash invested (down payment + closing + improvements). Cap rate (NOI / purchase price) is a related rental metric.
Yes. A $10,000 investment ending at $7,000 has ROI of −30%. Negative annualized ROI is valid as long as final value is above zero. A total loss (final = 0) makes the annualized formula undefined — you lost 100% regardless of time.
No. Profit margin (net income / revenue) measures how much of each sales dollar becomes profit. ROI (gain / investment) measures return on money at risk. A business can have strong margin but weak ROI if it required a large upfront investment, and vice versa.
ROI is a simple single-period ratio. IRR is the discount rate making NPV zero — it handles multiple cash flows. NPV values the project in today's dollars at a chosen discount rate. For one-in/one-out investments, annualized ROI and IRR give the same answer; for complex projects, IRR and NPV are more accurate.
Use total return: price change plus dividends reinvested. Price-only ROI understates dividend-stock returns by 30–40% over long horizons. S&P 500 total-return CAGR since 1928 is ~10%; price-only is only ~6%. Always annualize to compare across different holding periods.