How to Calculate ROI: Return on Investment Formula & Examples

Return on Investment (ROI) is the most fundamental measure of investment performance. Whether you're evaluating stocks, real estate, or a business venture, ROI tells you how much you've gained or lost relative to your initial investment. Our ROI calculator makes these calculations simple.

Understanding ROI helps you compare different investment opportunities, evaluate past decisions, and set realistic expectations. Use our compound interest calculator to project future growth.

The Basic ROI Formula

ROI = [(Final Value - Initial Value) ÷ Initial Value] × 100

Or equivalently:

ROI = (Gain ÷ Cost) × 100

Real-World Examples

Stock Investment

You bought stock for $5,000 and sold it for $7,500:

ROI = [($7,500 - $5,000) ÷ $5,000] × 100 = 50%

Real Estate

You bought a rental property for $200,000, spent $30,000 on improvements, and sold for $280,000:

Total cost = $230,000

ROI = [($280,000 - $230,000) ÷ $230,000] × 100 = 21.7%

Annualized ROI

To compare investments over different time periods, use annualized ROI:

Annualized ROI = [(1 + ROI)^(1/years) - 1] × 100

A 50% return over 3 years = [(1.50)^(1/3) - 1] × 100 = 14.5% annualized

Frequently Asked Questions

What is a good ROI?

This varies by investment type. Stocks historically return 7-10% annually. Real estate often targets 8-12%. Business investments may require 15-25% to justify the risk. Compare ROI against alternatives with similar risk.

Does ROI include dividends or rent?

Basic ROI measures price appreciation only. For total return, include all income received. A stock that gained 5% but paid 3% in dividends had a 8% total return.

How does ROI differ from profit?

Profit is the absolute dollar amount gained. ROI is the percentage return relative to your investment. $10,000 profit on a $50,000 investment is better (20% ROI) than $10,000 profit on $200,000 (5% ROI).