David is a Chartered Financial Analyst with over 15 years of experience in investment analysis, corporate finance, and assessing capital expenditures.
This 4-in-1 Return on Investment (ROI) calculator helps you measure investment performance. Enter any three values—Final Value, Initial Cost, Net Gain, or ROI—and we will solve for the fourth.
Return on Investment (ROI) Calculator
Return on Investment (ROI) Formulas
R = (G / C) * 100
or R = ( (F – C) / C ) * 100
Solve for Net Gain (G):
G = F – C
or G = C * (R / 100)
Solve for Initial Cost (C):
C = F – G
or C = G / (R / 100)
Solve for Final Value (F):
F = G + C
or F = C * (1 + (R / 100))
Formula Variables
- (F) Final Value: The total value of the investment at the end of the period (e.g., selling price).
- (C) Initial Cost: The total cost of the investment, including purchase price, fees, and improvements.
- (G) Net Gain (Profit): The profit from the investment, after subtracting the cost (G = F – C).
- (R) ROI: The Return on Investment, expressed as a percentage of the initial cost.
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What is Return on Investment (ROI)?
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is one of the most common and versatile financial metrics, as it can be used to compare the returns of different investments, from stocks and real estate to a new marketing campaign or a business loan.
ROI measures the amount of return (or net gain) on an investment relative to the investment’s cost. The result is expressed as a percentage. A positive ROI means the investment generated a profit, while a negative ROI means it resulted in a loss.
When considering a business loan, calculating the potential ROI is essential. A business owner might use a loan to purchase new equipment. By calculating the expected increase in revenue (Final Value) generated by that equipment against its cost (the loan principal + interest), the owner can determine if the loan is a profitable decision. Lenders also like to see a clear, positive ROI projection, as it demonstrates a strong plan for repaying the loan.
How to Calculate ROI (Example)
-
Identify Initial Cost (C)
You buy a small rental property.
• Total Initial Cost (C): $100,000 (purchase + closing costs) -
Identify Final Value (F)
After a few years, you sell the property.
• Final Value (F): $150,000 (sale price) -
Calculate Net Gain (G)
First, find the net gain (profit) from the sale:
G = F – C
G = $150,000 – $100,000 = $50,000 -
Choose the ROI Formula
Use the standard formula to find the ROI percentage:
R = (G / C) * 100 -
Calculate the ROI
Divide the net gain by the initial cost and multiply by 100:
R = ($50,000 / $100,000) * 100
R = 0.50 * 100 = 50%
Your Return on Investment is 50%.
Frequently Asked Questions (FAQ)
What is a “good” ROI?
A “good” ROI is highly subjective and depends on the industry, the risk of the investment, and the timeframe. A 10% annual ROI from the stock market is often considered good. A real estate investment might aim for 8-12%. A business investing in a new marketing campaign might demand an ROI of 500% (a 5:1 return) to be considered successful.
What is the main limitation of ROI?
The biggest limitation of this simple ROI formula is that it does not account for *time*. A 50% ROI over one year is fantastic, but a 50% ROI over 30 years is very poor (about 1.4% per year). For this reason, it’s often better to use “Annualized ROI” for comparing investments held for different time periods.
How can I use this calculator to find my target sale price?
Enter your Initial Cost (C) (e.g., $10,000) and your target ROI (R) (e.g., 25%). The calculator will solve for the Net Gain (G) and Final Value (F). This tells you the exact price you must sell your investment for to achieve your target ROI.
Does this ROI calculation include loan interest?
It depends on how you define “Initial Cost.” For the most accurate ROI on a *leveraged* investment (one made with a loan), your “Initial Cost” should ideally be only your own cash put in (the down payment). Your “Net Gain” would then be the profit *after* paying back all loan principal and interest. This becomes a more complex “Cash on Cash Return” calculation.