ROI Calculator (Return on Investment)
ROI Calculator (Return on Investment)
Return on investment as a percentage — and, because a 50% gain means something very different over one year and over ten, the same return as an annual rate.
Return on investment
$1,00,000 invested, worth $1,50,000 after 3 years
ROI and annualised return
- cost
- what you invested, including fees and charges
- value
- what you received, or what the investment is worth now
- inflation
- the average yearly rise in prices over the holding period, as a decimal
Worked example
$1,00,000 invested, worth $1,50,000 after 3 years
ROI = (1,50,000 − 1,00,000) ÷ 1,00,000 = 50%
CAGR = 1.51/3 − 1 = 14.47% a year
With prices rising 4% a year: real return = 1.1447 ÷ 1.04 − 1 = 10.07% a year
Why ROI alone can mislead
ROI answers one question: how much did this investment gain or lose in total? It does not say how long that took. 50% in three years is about 14.5% a year; 50% in ten years is about 4.1% a year, below what a bank deposit might pay. That is why the annualised return is shown beside it, and why investments held for different periods should be compared on the annualised figure.
Both figures assume a single amount in and a single amount out. If you added money at different times — as with a SIP — neither is the right measure, and XIRR is. Include every cost: brokerage, fees, taxes paid and, for property, stamp duty and maintenance. Leaving costs out is the commonest way an ROI flatters an investment.
Both figures are also before inflation. A return has to beat rising prices before it makes you any better off, so the page shows the real annualised return as well. With prices rising 4% a year, 14.47% a year is a real return of about 10.07%: 1.1447 ÷ 1.04 − 1. Subtracting the inflation rate instead would give 10.47%. That shortcut is close at low rates but overstates the real return, and the gap widens as returns and inflation rise. Enter the inflation that actually applied over your holding period if you know it. A real return near zero means the investment only kept pace with prices.
For a steady monthly investment use the SIP calculator; to project a lump sum forward at a fixed rate use the compound interest calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do you calculate ROI?
ROI = (current value − amount invested) ÷ amount invested × 100. Investing 1,00,000 and ending with 1,50,000 is an ROI of 50%.
What is the difference between ROI and CAGR?
ROI is the total gain; CAGR spreads it over the years as an annual rate. 50% over 3 years is a CAGR of about 14.47%.
What is a good ROI?
It depends on the period and the risk. Compare the annualised return with what a low-risk alternative such as a deposit would have paid over the same time.
What is the real annualised return?
The annualised return after inflation: (1 + CAGR) ÷ (1 + inflation) − 1. A CAGR of 14.47% with prices rising 4% a year is a real return of about 10.07% a year, not the 10.47% you get by subtracting.
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References
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. The present value of an annuity, from which the level-payment loan formula follows.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.