Return on Investment Calculator
Return on Investment (ROI) measures the gain or loss from an investment relative to the amount originally invested. It is a simple way to express investment performance as a percentage and can be useful when comparing projects, purchases, campaigns, or other investments.
Quick Answer
The basic formula is ROI = (Gain from Investment β Cost of Investment) Γ· Cost of Investment Γ 100. If a $10,000 investment produces $12,500 in value, the gain is $2,500 and ROI is 25%.
Inputs Explained
Initial investment: The amount put into the project or asset. Final value: The amount received or current value used for the calculation. Additional costs: Fees, operating expenses, or other amounts may need to be included to make the result meaningful.
How to Use the Calculator
- Enter the original investment cost.
- Enter the final value or proceeds.
- Include relevant costs if the calculator provides an input for them.
- Review the ROI percentage and the underlying gain or loss.
Worked Examples
Example 1 β Gain: Invest $10,000 and receive $12,500. Gain = $2,500. ROI = 2,500 Γ· 10,000 Γ 100 = 25%.
Example 2 β Loss: Invest $8,000 and end with $7,000. The loss is $1,000, so ROI = -1,000 Γ· 8,000 Γ 100 = -12.5%.
Example 3 β Business project: A $20,000 project generates $26,000 of value after relevant costs. The $6,000 gain produces an ROI of 30%.
ROI Examples
| Investment Cost | Final Value | Gain/Loss | ROI |
|---|---|---|---|
| $5,000 | $6,000 | $1,000 | 20% |
| $10,000 | $12,500 | $2,500 | 25% |
| $8,000 | $7,000 | -$1,000 | -12.5% |
| $20,000 | $26,000 | $6,000 | 30% |
ROI vs Profit
Profit and ROI are related but not identical. A $5,000 profit can look attractive until the investment size is considered. ROI puts the result into percentage terms, making it easier to compare investments of different sizes. Time is another important factor: a 20% ROI over one year is not the same as a 20% ROI earned over ten years.
Common Mistakes
- Leaving out fees or other costs that materially affect the investment.
- Comparing ROI percentages without considering the time required to earn them.
- Mixing gross revenue with actual investment gain.
- Assuming a historical ROI guarantees future performance.