Return on investment (ROI) Calculator

ROI Made Simple - Calculate with Confidence.

Initial Investment ($)

Final Value ($)

Investment Duration

Results

Return on Investment (ROI)

Total return over the entire investment period

Simple Annual ROI

Average annual return without compounding

Compound Annual Growth Rate (CAGR)

Annual growth rate assuming profits are reinvested

Understanding ROI Calculations

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. ROI compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs.

Simple Annual ROI is calculated by dividing the total ROI by the number of years the investment was held. This gives you an average annual return without considering the effects of compounding.

Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

While simple ROI is useful for quick calculations, CAGR provides a smoothed annual rate that eliminates the volatility of periodic returns that can render arithmetic means irrelevant. Investors can compare the CAGR of two alternatives to evaluate how well one investment performed against another over a time period.

Frequently Asked Questions

1. What is the difference between ROI and CAGR?

ROI measures the total return over the entire investment period, while CAGR measures the annual growth rate assuming the investment grows at a steady rate each year. ROI shows the total profit, while CAGR shows the annualized return.

2. When should I use simple annual ROI vs CAGR?

Use simple annual ROI when you want to understand the average annual return without considering compounding effects. Use CAGR when you want to understand the consistent annual growth rate that would get you from the initial investment to the final value, accounting for compounding.

3. Can ROI be negative?

Yes, ROI can be negative if the final value of your investment is less than your initial investment. This means you've lost money on the investment.

4. What is considered a good ROI?

A "good" ROI depends on the type of investment, risk level, and time period. Generally, an annual ROI of 7-10% might be considered good for stock market investments, while real estate investors might aim for 10-15%. Always compare ROI to relevant benchmarks.

5. Why is CAGR important?

CAGR is important because it provides a smoothed annual rate that accounts for compounding, making it easier to compare different investments over the same time period. It eliminates the effects of volatility and shows what constant rate of growth would be required to achieve the final value.