ROI Calculator
Skip the manual arithmetic and calculate your own numbers.
Basic ROI formula
Subtract the investment cost from the amount received or current value to find the gain. Divide that gain by the original cost and multiply by 100.
Gain = Ending value − Initial cost
Simple ROI example
If an investment costs $5,000 and later has a value of $6,000, the gain is $1,000. Divide $1,000 by the original $5,000 cost to get 0.20. The ROI is 20%.
Business-project ROI
The same structure can be used for a business project when costs and benefits are reasonably measurable. If a project costs $20,000 and produces $28,000 of attributable value, the simple gain is $8,000 and the simple ROI is 40%.
The quality of the calculation depends on which costs and benefits are included. Omitting labor, fees, maintenance or other costs can overstate ROI.
ROI vs. profit margin
ROI compares gain with the amount invested. Profit margin compares profit with revenue. They answer different questions and should not be used interchangeably.
A business can have a high margin on a sale but a very different ROI on the capital required to create that sale.
ROI and time
A basic ROI percentage does not tell you how long the return took. A 20% ROI over one year is not economically identical to a 20% ROI over five years. For multi-year comparisons, an annualized-return measure such as CAGR can provide additional context.
ROI and risk
Two investments with the same simple ROI can carry very different levels of uncertainty, liquidity and downside risk. ROI is therefore a useful starting measure rather than a complete investment decision.
Common ROI mistakes
- Leaving important costs out of the initial investment.
- Comparing ROI percentages from very different time periods without annualizing them.
- Using revenue instead of gain in the numerator.
- Ignoring cash flows added or withdrawn during the measurement period.
- Treating ROI as a complete measure of risk or investment quality.
Frequently asked questions
What does a 25% ROI mean?
A simple 25% ROI means the gain equals 25% of the original investment cost under the values included in the calculation.
Is ROI the same as profit margin?
No. ROI compares gain with investment cost, while profit margin compares profit with revenue.
Does ROI account for time?
Basic ROI does not. For returns across different time periods, an annualized measure such as CAGR can provide more context.