ROI Calculator (Return on Investment + Annualized)
Enter initial investment, total returns, and holding period in years. Returns ROI%, annualized (CAGR) %, and absolute profit. Works for any time horizon.
- ROI
- 25%
- Annualized (CAGR)
- 11.8%
- Absolute profit
- 25,000
How it works
ROI vs annualized return
ROI (Return on Investment) = (final value โ initial) / initial ร 100%. Simple, useful when comparing investments held for the same period. A 50% ROI in 1 year is way better than a 50% ROI in 10 years โ but ROI alone doesn't show that.
Annualized return (also called CAGR โ Compound Annual Growth Rate) normalizes ROI to an annual figure. A 21% ROI over 2 years is a 10% annualized return. A 100% ROI over 7 years is also a 10% annualized return. CAGR makes apples-to-apples comparisons.
When to use each
ROI: best when comparing investments at the same date or with the same end. 'I bought stock A and stock B in January, what are their ROIs today?' is a fair comparison.
CAGR: best when comparing investments held for different durations. 'My real estate gave 80% in 5 years; my stocks gave 30% in 2 years. Which performed better?' Calculate CAGR for both: real estate = 12.5% annualized, stocks = 14% annualized โ stocks won (per year).
For investments where you reinvested or added to over time, neither metric is sufficient โ use IRR (internal rate of return) which accounts for irregular cash flows. Spreadsheets have built-in IRR functions.
What 'returns' to use
Use the final value or total returns received. For stocks: include dividends if you reinvested them; or treat dividends + final price as the 'returns' if you took them as cash.
For real estate: include rental income (if rental property) plus sale price. Subtract repairs, taxes, fees from total returns for net ROI.
For business / side projects: returns = revenue minus all expenses (not just gross). Otherwise you're calculating ROI on an inflated number.
Frequently asked questions
โบWhat's a 'good' ROI?
Context matters. S&P 500 long-term: ~10% nominal CAGR. Real estate: 8-10% combined CAGR. Anything above inflation (~3%) is real growth. Anything below: you're losing purchasing power.
โบDoes ROI account for risk?
No. Two investments with the same ROI can have very different risk levels. A bond yielding 5% and a startup that returned 5% are not equivalent โ the startup had ~50% chance of zero. Always consider risk-adjusted returns (Sharpe ratio, etc.).
โบWhy is annualized return lower than total ROI for long holds?
Compounding. 100% total over 10 years is only 7.18% annualized โ half the time required to double your money via the rule of 72 (72/10 = 7.2).
โบShould I subtract taxes for accurate ROI?
For after-tax ROI, yes. For comparing pre-tax investments, use gross returns. Be consistent โ don't compare a tax-free account's return to a taxable account's gross return.
โบWhat's the difference between CAGR and IRR?
CAGR assumes one initial investment and one final value. IRR handles irregular cash flows โ multiple deposits, dividends, withdrawals over time. CAGR โ IRR for simple buy-and-hold.
โบCan I use this for a business sale?
Yes. 'Investment' = total cost basis (purchase price plus capital improvements). 'Returns' = sale proceeds plus any cumulative profit distributed during ownership.
โบHow does ROI differ from profit margin?
ROI is return divided by capital invested. Profit margin is profit divided by revenue. They measure different things: ROI = how good is the use of capital, margin = how profitable is each sale.
โบDoes the data leave my browser?
No. Calculation runs locally; nothing is sent to a server.
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