ROI
Return relative to investment cost.
What does ROI mean?
Return on Investment (ROI) is a performance metric that measures the profitability of an investment relative to its cost. A positive ROI means the investment gained value, while a negative ROI means it lost money. ROI is widely used to compare the efficiency of different investments and make informed financial decisions.
How to calculate ROI
ROI is calculated with the formula: ROI (%) = ((Final Value − Initial Investment) / Initial Investment) × 100. For example, if you invest $10,000 and receive $15,000 back, the ROI is ((15000 − 10000) / 10000) × 100 = 50%. The gain multiple is simply Final Value / Initial Investment — in this case 1.50x.
FAQ
A "good" ROI depends on the context. In the stock market, an average annual return of 7–10% is considered solid. Real estate typically targets 8–12%. For business projects, any positive ROI above the cost of capital is generally favorable. Always compare ROI against alternative investments and account for risk.
No. Basic ROI measures total return regardless of how long the investment was held. A 50% return over 1 year is much better than 50% over 10 years. For time-adjusted comparisons, use annualized ROI or CAGR (Compound Annual Growth Rate).
Yes. A negative ROI means the investment lost money — the final value is less than the initial cost. For example, investing $10,000 and getting back $8,000 results in an ROI of −20%.
ROI measures the return relative to the total investment cost, while profit margin measures profit relative to revenue. ROI is used to evaluate investment efficiency; profit margin is used to evaluate business operational efficiency.
Include all costs associated with the investment: purchase price, transaction fees, maintenance costs, taxes, and any other expenses. The more comprehensive your cost figure, the more accurate your ROI calculation will be.
Related calculators
- Compound Interest— Growth of money with reinvested interest.
- CAGR— Average annual growth rate.
- Break-Even— Point where revenue equals cost.
- Profit Margin— Profit as percentage of revenue.