Economist with 15+ years of experience in financial modeling and investment analysis.
Use the ROI Calculator to quickly determine the return on your investment. Simply **enter the initial cost** and the **final value or net proceeds** to calculate your Return on Investment percentage.
ROI Formula
$$ ROI (\%) = \frac{(Final\ Value – Initial\ Investment)}{Initial\ Investment} \times 100 $$
Formula Source: InvestopediaThe formula uses three key variables:
- **Final Value:** The revenue received from the sale of the investment or its current market value.
- **Initial Investment:** The total cost paid to acquire the investment.
- **ROI:** The percentage return generated by the investment, indicating its efficiency.
Related Calculators
- Compound Annual Growth Rate (CAGR) Calculator
- Net Present Value (NPV) Calculator
- Internal Rate of Return (IRR) Calculator
- Simple Interest Calculator
What is Return on Investment (ROI)?
Return on Investment (ROI) is a fundamental performance measure used to evaluate the efficiency of an investment or to compare the efficiency of different investments. It directly measures the amount of return on an investment relative to the investment’s cost. The result is typically expressed as a percentage, making it easy to understand the direct profitability of any project or asset.
ROI is important because it provides a **clear, standardized metric** for decision-making. Investors use it to select profitable ventures, businesses use it to justify capital expenditures, and marketers use it to gauge campaign effectiveness. A high ROI means the investment’s gains compare favorably to its cost, while a low or negative ROI indicates poor performance or a net loss.
How to Calculate ROI (Example)
Let’s use an example to show how the calculation works:
-
Identify Investment Values:
Suppose you invested **£10,000** in a stock and sold it one year later for **£12,000** (net of all fees). Your Initial Investment is $10,000, and your Final Value is $12,000.
-
Calculate the Net Return:
Subtract the Initial Investment from the Final Value: $12,000 – $10,000 = **$2,000** (Net Return).
-
Divide Net Return by Initial Investment:
Divide the Net Return by the Initial Investment: $2,000 / $10,000 = **0.20**.
-
Convert to a Percentage:
Multiply the result by 100 to get the percentage: $0.20 \times 100 = **20\%**.
The ROI for this investment is **20\%**.
Frequently Asked Questions (FAQ)
There is no universally “good” ROI, as it depends heavily on the industry, risk level, and time frame. Generally, an ROI exceeding the risk-free rate (like government bonds) is considered reasonable, but investors often seek much higher returns (e.g., 7% to 10% annually) for higher-risk assets.
Is ROI the same as Profit Margin?No. Profit Margin measures profit as a percentage of *revenue or sales* (Profit / Revenue). ROI measures the return as a percentage of the *cost of the asset or investment* (Net Return / Investment Cost). They measure efficiency at different stages.
Can ROI be negative?Yes, ROI is negative when the Final Value (or Net Proceeds) is less than the Initial Investment Cost. This indicates that the investment resulted in a net financial loss.