What Is Return on Investment (ROI)?
Return on Investment (ROI) is one of the most widely used metrics in finance and business for measuring the profitability of an investment relative to its cost. Expressed as a percentage, ROI lets you compare investments of different sizes on a level playing field — whether you're evaluating stocks, real estate, a marketing campaign, or a side business.
How to Use This Calculator
Enter two values: the Initial Investment (Cost) — the amount you put in — and the Final Value (Total Return) — the amount you got back, including the original capital. The calculator instantly returns your ROI percentage along with the net profit (or loss).
The Formula Explained
The ROI percentage is calculated as:
$$\text{ROI} = \frac{\text{Final Value} - \text{Cost}}{\text{Cost}} \times 100\%$$
The numerator, Final Value minus Cost, is your net profit. Dividing by the cost normalizes the profit against the size of the investment, and multiplying by 100 converts the ratio into a percentage. A positive result means a gain; a negative result means a loss.
Worked Example
Suppose you invest $1,000 in a stock and later sell it for $1,200. Your net profit is \(\$1{,}200 - \$1{,}000 = \$200\). Dividing by the cost gives \(\$200 \div \$1{,}000 = 0.2\), and multiplying by 100 yields a 20% ROI. That means for every dollar invested you earned 20 cents in profit.
FAQ
Does ROI account for time? No. Basic ROI is a single-period measure and ignores how long the money was invested. For time-sensitive comparisons, consider annualized ROI or CAGR.
Can ROI be negative? Yes. If the final value is less than the cost, you have a loss and the ROI percentage will be negative.
Should I include fees and taxes? For an accurate figure, subtract any transaction fees, commissions, or taxes from your final value before calculating.
