ROI calculator
Total return tells you how much you made. Annualised return tells you whether it was any good. This calculates both, because comparing a three-year investment to a ten-year one on total return alone is meaningless.
Built and checked by Mubashir, who works in accounting and finance. Formula and sources shown below. Not financial advice.
The investment
Total return on investment
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Net profit or loss
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Annualised return
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Money multiple
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Show the working
—Why annualised return is the number that matters
A 50% total return sounds excellent. Earned over one year it is exceptional. Earned over fifteen years it is roughly 2.7% a year, which is worse than most savings accounts and probably below inflation.
Total ROI ignores time entirely, which makes it useless for comparing anything held for different periods. Annualised return — the compound annual growth rate — converts any holding period into a per-year figure, and that is the only fair basis for comparison.
The formula is the ROI equation rearranged for time:
Annualised = (Final ÷ Initial)1/years − 1
Leave the years field blank and you get total ROI only, which is appropriate for a completed one-off transaction like flipping an item.
What counts as a good ROI
The honest answer is that it depends on what you gave up and what you risked, but some anchors help.
Broad equity markets have historically returned somewhere around 7 to 10% a year over long periods before inflation. That is the benchmark most investments should be measured against, because it is available to anyone with a brokerage account and no special effort. An investment returning 6% annualised while requiring your active involvement is, in a real sense, losing to doing nothing.
Business investments are judged more harshly because they carry concentration risk and demand your time. Marketing spend is often expected to return several times its cost. Equipment purchases are usually assessed on payback period rather than ROI at all.
What ROI leaves out
Risk. Two investments returning 12% annualised are not equivalent if one was a government bond and the other a single startup. ROI is blind to the distribution of outcomes that could have happened.
Cash flows in between. This calculator compares two points in time. If you added money partway through or took dividends out, the simple calculation misstates your return. That situation needs an internal rate of return, which weights each cash flow by when it occurred.
Opportunity cost. Money in this investment was not somewhere else. The relevant comparison is rarely against zero.
Inflation and tax. A 7% nominal return during 5% inflation is a 2% real gain before tax, and less after. For long holding periods, the difference between nominal and real return is the difference between feeling richer and being richer.
Not financial advice. ROI is a backward-looking measure of one investment and says nothing about what will happen next. Past performance does not indicate future results.
Frequently asked questions
What is a good ROI?
There is no universal figure. Long-run broad equity market returns of roughly 7 to 10% annually are a reasonable benchmark, since that is achievable passively. Anything requiring your time or carrying concentrated risk should beat it to be worthwhile.
How is ROI calculated?
Net profit divided by the amount invested, times one hundred. Annualised return takes the ratio of final to initial value, raises it to the power of one over the number of years, and subtracts one.
What is the difference between ROI and annualised return?
ROI is the total gain regardless of time. Annualised return converts that into a per-year rate, which is the only way to compare investments held for different periods.
What is the difference between ROI and profit margin?
ROI measures return against what you put in. Profit margin measures profit against revenue. A business can have a healthy margin and a poor ROI if it required enormous capital to generate that revenue.
Can ROI be negative?
Yes. If the final value is below what you invested, both the profit and the ROI are negative, and the annualised figure shows the yearly rate of loss.
Should I use nominal or inflation-adjusted figures?
For comparing against other investments, nominal is fine as long as you are consistent. For judging whether you actually gained purchasing power, subtract inflation from the annualised return.