Free ROI Calculator - Calculate Return on Investment

Return on Investment (ROI) is a fundamental financial metric that measures the profitability of an investment relative to its cost. The basic ROI formula is straightforward: ROI = (Final Value - Initial Investment) / Initial Investment × 100. This percentage tells you how much you've gained or lost compared to your original investment.

ROI is universally used across all types of investments—stocks, real estate, business ventures, cryptocurrency, and more. It provides a standardized way to compare different investment opportunities regardless of their size or nature. A positive ROI indicates profit, while a negative ROI signals a loss.

However, basic ROI has an important limitation: it doesn't account for time. A 50% ROI over 1 year is dramatically better than 50% over 10 years, which is why annualized ROI (which factors in the time period) provides a more accurate picture of investment performance when comparing opportunities with different time horizons.

Simple ROI calculates your total return without considering time: if you invest $10,000 and it grows to $15,000, your simple ROI is 50% regardless of whether that took 1 year or 10 years. This metric is useful for quick comparisons but can be misleading when comparing investments held for different time periods.

Annualized ROI (also called Compound Annual Growth Rate or CAGR) standardizes returns on a per-year basis, making it the gold standard for comparing investments with different time horizons. The formula is: Annualized ROI = ((Final Value / Initial Investment)^(1/Years)) - 1 × 100. This tells you the equivalent yearly return if the investment grew at a steady rate.

Example: Investment A returns 100% over 2 years (50% annualized), while Investment B returns 60% over 1 year (60% annualized). Despite A's higher total return, B actually performed better on an annual basis. This is why professional investors almost always use annualized returns when evaluating long-term performance.

Stock Market Investments: Historical S&P 500 returns average around 10% annually (before inflation). Individual stocks can vary dramatically—growth stocks might return 15-30% in good years but can also decline sharply. Dividend-paying stocks typically offer 2-6% yields plus potential capital appreciation, making total ROI calculations essential.

Real Estate Investing: Rental properties often generate 8-12% annual ROI through a combination of rental income, appreciation, and tax benefits. Fix-and-flip investments target 15-25% ROI per project but carry higher risk. Remember to factor in costs like maintenance, property taxes, and vacancy periods when calculating real estate ROI.

Business Investments: Small business investments and angel investing can generate exceptional ROI (20-50%+) but come with significant failure risk. Many startups fail completely (100% loss), so diversification is crucial. Calculate ROI by including all invested capital, not just initial funding rounds.

Cryptocurrency: Crypto investments are highly volatile, with potential for massive gains (100%+ ROI) but also total loss. Historical Bitcoin returns exceed 100% annualized since 2010, but year-to-year volatility makes timing critical. Always calculate ROI from your actual entry and exit points, not theoretical peaks.

Nominal ROI (the raw percentage) doesn't tell the full story because inflation erodes purchasing power. If you earn 8% ROI but inflation is 3%, your real ROI (inflation-adjusted return) is approximately 5%—that's your true increase in purchasing power.

The formula for real returns is: Real ROI = ((1 + Nominal ROI) / (1 + Inflation Rate)^Years - 1) × 100. This calculation is crucial for long-term investments where inflation compounds over many years. Historical U.S. inflation averages around 2-3% annually, but can spike much higher during economic disruptions.

Example: A $100,000 investment growing to $200,000 over 10 years yields 100% nominal ROI (7.2% annualized). But if inflation averaged 3% during that period, your real ROI is only about 70%, meaning your actual purchasing power increase is significantly less than the nominal numbers suggest. Always consider inflation when planning retirement or long-term wealth building.