Quick Answer
ROI (return on investment) measures the gain or loss from an investment relative to its original cost. The basic ROI formula is:
ROI = (Net gain / Investment cost) x 100
If you invest $10,000 and the investment becomes worth $12,500, the net gain is $2,500 and the ROI is 25%. A positive ROI is a gain, a negative ROI is a loss, and a 0% ROI means the final value equals the original cost.
Use the ROI Calculator to enter either a final value or a gain/loss amount. Add an optional holding period to calculate annualized ROI as well.
ROI Formula
The standard return on investment formula has two parts:
Net gain = Final value - Investment cost
ROI = (Net gain / Investment cost) x 100
You can also write the same ROI equation in one line:
ROI = ((Final value - Investment cost) / Investment cost) x 100
In this equation:
- Investment cost is the positive amount originally invested or paid.
- Final value is what the investment is worth at the end.
- Net gain is the final value minus the investment cost. It can be positive, zero, or negative.
ROI is expressed as a percentage so investments of different sizes can be compared on the same relative basis. The simple ROI calculation does not account for how long the investment was held.
How to Calculate ROI: Examples
Example 1: Calculate ROI from final value
Suppose you invested $10,000 and the final value is $12,500.
- Calculate net gain: $12,500 - $10,000 = $2,500
- Divide by the investment cost: $2,500 / $10,000 = 0.25
- Convert to a percentage: 0.25 x 100 = 25%
The result is:
- ROI: +25.00%
- Net gain: +$2,500.00
- Final value: $12,500.00
These are the same values the calculator returns in Final value mode.
Example 2: Calculate ROI from a gain amount
If you know the gain rather than the final value, the ROI calculation is even more direct. For an $8,000 investment with a $2,000 gain:
ROI = ($2,000 / $8,000) x 100 = 25%
The final value is $8,000 + $2,000 = $10,000. In the calculator, select Gain or loss and enter a positive number for the gain.
| Investment cost | Final value | Net gain or loss | ROI |
|---|---|---|---|
| $10,000 | $12,500 | +$2,500 | +25.00% |
| $8,000 | $10,000 | +$2,000 | +25.00% |
| $5,000 | $4,200 | -$800 | -16.00% |
| $1,000 | $1,000 | $0 | 0.00% |
The return on investment calculator performs this calculation automatically and keeps the ROI, net gain or loss, and final value together.
How Negative ROI Works
Negative ROI means the final value is lower than the investment cost. The ROI formula does not change; the net gain simply becomes a negative number.
For example, suppose a $5,000 investment falls to $4,200:
Net gain or loss = $4,200 - $5,000 = -$800
ROI = (-$800 / $5,000) x 100 = -16%
The result is a -$800 net loss and a -16.00% ROI.
In Gain or loss mode, enter the loss with a minus sign. In this calculator, the final value cannot be negative. A loss equal to the full investment cost produces a final value of $0 and an ROI of -100%. The calculator keeps the last valid result visible if a current input is invalid and asks you to correct the field before recalculating.
Annualized ROI
Simple ROI gives the total return for the whole holding period, but it does not show the pace of that return. When the holding period is greater than zero, the calculator also uses the compound annual growth rate (CAGR) equation:
Annualized ROI = ((Final value / Investment cost)^(1 / Holding period in years) - 1) x 100
For a $10,000 investment that grows to $12,500 over 2 years:
Annualized ROI = ((12,500 / 10,000)^(1 / 2) - 1) x 100 = 11.80% per year
The simple ROI is still 25.00%. The annualized ROI is 11.80%, the constant compounded yearly rate that links the same starting and ending values over two years.
The calculator accepts years plus 0 to 11 additional months. It converts that holding period to years before applying the formula. If no positive holding period is entered, it shows simple ROI without an annualized result.
Annualized ROI here is appropriate for one starting value, one ending value, and no intermediate deposits or withdrawals. It is not a simple arithmetic average of yearly returns. For a deeper comparison, see Simple ROI vs. Annualized ROI.
What the ROI Calculation Does Not Include
The standard ROI calculation only uses the values entered. It does not automatically account for:
- taxes;
- transaction or advisory fees;
- inflation;
- dividends or other distributions;
- recurring contributions or withdrawals;
- differences in investment risk.
If one of these items should be part of the outcome, adjust the cost or final value consistently before calculating. For a scenario with recurring contributions, use the Investment Calculator instead of treating every cash flow as part of a simple two-value ROI equation.
Frequently Asked Questions
What does ROI stand for?
ROI stands for return on investment. It measures a gain or loss as a percentage of the original investment cost.
What is the return on investment formula?
The return on investment formula is ROI = (Net gain / Investment cost) x 100, where net gain equals final value minus investment cost.
How do I calculate ROI manually?
Subtract the investment cost from the final value. Divide that gain or loss by the investment cost, then multiply by 100. For example, (($12,500 - $10,000) / $10,000) x 100 = 25%.
Can ROI be negative?
Yes. ROI is negative when the final value is below the original investment cost. A -20% ROI means the investment lost 20% of its original cost.
Is ROI the same as annualized ROI?
No. Simple ROI is the total percentage return for the full period. Annualized ROI converts a start-to-finish return into an equivalent compounded yearly rate when a positive holding period is known.
What is a good ROI?
There is no single good ROI for every investment. The time period, risk, fees, taxes, inflation, and available alternatives all matter. See What Is a Good ROI? for benchmark context without changing the basic ROI calculation explained here.
Does ROI include dividends?
Not automatically. To include dividends or other income in this simple calculation, add them consistently to the ending proceeds or final value. Multiple cash flows at different dates require a cash-flow-aware measure rather than this basic ROI formula.
Calculate Your ROI
Enter your investment cost and either the final value or gain/loss amount in the ROI Calculator. Add a holding period only when you also want the annualized ROI.
This article is for informational purposes only and does not constitute financial advice.