ROI Calculator: Return on Investment

When to calculate ROI

ROI, return on investment, measures the result of an investment against what it cost: net gain divided by total cost, expressed as a percentage. Because it is a ratio it compares operations of wildly different sizes: €3,000 earned on €10,000 invested and €300,000 earned on €1,000,000 both come to a 30% ROI.

The quality of the number depends on what goes into the denominator. Total cost is not just the purchase price: dealing fees, taxes, notary costs, refurbishment works, advertising budget and the hours of work you put in are all part of the investment. Leaving them out inflates the result and makes any comparison between alternatives unreliable.

The main limitation of ROI is that it ignores time: 30% earned in one year is not the same as 30% earned over ten. That is why this calculator adds the annualised ROI — the compound annual growth rate that, applied to the total cost over the holding period, lands exactly on the final value. It is the right measure for comparing investments of different lengths.

Worked example: €10,000 invested, no additional costs, worth €13,000 after 3 years. The net gain is €3,000, the ROI is 3,000 / 10,000 = 30%, and the annualised ROI is (13,000 / 10,000)^(1/3) − 1 = 9.14% a year. Add €500 of fees and the total cost rises to €10,500, pulling the ROI down to 23.81%.

Common mistakes

Dividing by the purchase price alone and forgetting fees and taxes: the ROI comes out higher than what actually reached your pocket.
Comparing investments of different lengths without annualising: it is the comparison that makes a long, mediocre investment look attractive.
Forgetting interim cash flows such as coupons, dividends or rent: they belong in the final value, otherwise the return is understated.
Reading ROI as a measure of risk: it says what an operation returned, not how likely that result is to repeat.

Frequently asked questions

What is the ROI formula?

ROI = (final value − total cost) / total cost × 100, where total cost is the initial investment plus any additional costs. The result is the gain as a percentage of what you committed.

What is the difference between ROI and annualised ROI?

ROI is the total return of the whole operation, whatever its length. Annualised ROI restates it per year taking compounding into account: (final value / total cost)^(1/years) − 1.

Can ROI be negative?

Yes, whenever the final value is below the total cost. An ROI of −20% means the operation gave back a fifth less than was put into it.

Does ROI account for inflation and taxes?

No: the figure is nominal and gross. For a real return, subtract the tax due on investment gains and allow for the purchasing power lost to inflation over the period.

How do I calculate the ROI of a marketing campaign?

Put the margin the campaign generated in the final value, not the revenue, and everything the campaign cost — internal hours included — in the cost. ROI measured on revenue systematically overstates the result.

How this calculation works

ROI = (final value − total cost) / total cost × 100, where total cost = initial investment + additional costs. Net gain is final value − total cost. The annualised ROI is the equivalent compound annual rate: (final value / total cost)^(1/years) − 1, expressed as a percentage; it is only computed when a holding period is given.

Break-even point

Units and turnover needed to cover fixed costs, with contribution margin and margin of safety.

Markup and margin

Selling price from cost and markup or margin, with both figures.

Asset depreciation

Depreciation schedule by straight line or declining balance, year by year.

Financial ratios

ROE, ROI, ROS, gearing and liquidity ratios.