ROI Calculation Methods Explained

ROI (Return on Investment) measures the profitability of an investment.

Basic ROI Formula

ROI = (Gain - Cost) / Cost × 100%

Example: Invest $1,000, sell for $1,500 ROI = ($1,500 - $1,000) / $1,000 × 100% = 50%

Annualized ROI

For comparing investments of different durations: Annualized ROI = ((1 + ROI)^(1/years) - 1) × 100%

ROI vs Other Metrics

• ROI: Simple percentage return
• IRR: Accounts for time value of money
• CAGR: Smoothed annual growth rate

Limitations of ROI

1. Doesn't account for time 2. Ignores risk 3. Can be manipulated 4. Doesn't include opportunity cost

Use our ROI Calculator for quick analysis.