Return on Investment (ROI) Calculator
Look at total ROI for volume, but look at Annualized ROI for efficiency.
What this calculator does
Return on Investment (ROI) is the ultimate metric for measuring the profitability of a business endeavor or asset purchase. Earning $50,000 on an investment is great, but earning it in one year versus ten years represents widely different financial realities. This tool calculates both pure Total ROI (simplest metric) and Annualized Return (Compound Annual Growth Rate / CAGR) allowing you to compare investments stretching across varied timespans. CAGR acts as a universal equalizer across stock performance, real estate, and corporate project evaluations.
Formula & how it works
Total ROI = (Final Value − Initial Investment) ÷ Initial Investment. Annualized Return (CAGR) = (Final ÷ Initial)^(1 / Years) − 1.
Worked examples
- Deploying 100K to get back 180K over 5 years yields an 80% Total ROI and a respectable 12.47% Annualized ROI.
- The same 100K yielding 180K over 10 years still holds an 80% Total ROI, but the Annualized ROI plunges to 6.05%.
Frequently asked questions
- Why use CAGR instead of just dividing total ROI by years?
- A straight arithmetic average ignores the compounding effect of an investment, which wildly inflates the perceived annual return. CAGR mathematically flattens the compound growth for true year-over-year accuracy.
- Does ROI take financial risk into account?
- No. High-reward metrics must be compared logically alongside risk indicators such as standard deviations or historical maximum drawdowns when evaluating portfolios.