ROI Calculator
Measure how well an investment performed — a stock, a rental property, a marketing campaign, or new equipment for your business.
The ROI formula
ROI = (Final value − Amount invested) ÷ Amount invested × 100. It's the universal language for comparing investments: a 40% ROI means every dollar in produced $1.40 back. "Amount invested" should include all costs — purchase price, fees, renovations, ad spend — and "final value" should be net of selling costs.
Why annualized return matters more
A 40% ROI is spectacular in one year and mediocre over fifteen. CAGR (compound annual growth rate) converts total return into a per-year rate: CAGR = (Final ÷ Invested)1/years − 1. Use CAGR when comparing investments held for different lengths of time — it's the honest comparison.
ROI for small business decisions
The same math prices business choices: a $2,000 ad campaign that produces $6,000 in gross profit has a 200% ROI. For equipment, compare the ROI of the purchase against what the money could earn elsewhere. Anything below your cost of borrowing is usually not worth financing.
Why the same ROI can be good or mediocre
Suppose you invested $12,000 and it's now worth $15,600 — a 30% ROI. Whether that's impressive depends entirely on how long it took:
| Held for | Total ROI | Annualized (CAGR) | Verdict |
|---|---|---|---|
| 1 year | 30% | 30.00% | Excellent |
| 3 years | 30% | 9.14% | Solid |
| 5 years | 30% | 5.39% | Below market average |
| 10 years | 30% | 2.66% | Barely beat inflation |
The headline number is identical in every row. This is why you should never compare investments on total ROI alone — always convert to the annualized figure before deciding anything.
Using ROI for business decisions
The same arithmetic prices everyday business choices. A $2,000 advertising campaign that produces $6,000 of gross profit returns 200% — but note that it must be gross profit, not revenue. $6,000 of sales at a 40% margin is only $2,400 of profit, an ROI of 20%, which is a completely different decision.
For equipment, compare the ROI against your alternatives: if a $10,000 machine saves $4,000 a year in outsourcing, it returns 40% annually against borrowing costs of perhaps 8–10%. That's a clear yes. Anything returning less than your cost of capital destroys value, however busy it keeps you.
What people leave out
- All the costs. Purchase price plus fees, commissions, renovations, shipping, and your own time if it's material.
- Selling costs. Real estate agent fees of 5% turn a nominal gain into a substantially smaller one.
- Ongoing income. Rent, dividends and interest belong in the returned figure, net of running costs.
- Tax. A 30% pre-tax return in a taxable account is not 30% in your pocket. Compare like with like.
- Risk. ROI says nothing about the chance of loss. A guaranteed 5% and a speculative 15% are not comparable numbers.