Return on Investment (ROI) Calculator

Calculate the return on investment as a percentage to evaluate investment performance.

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What is Return on Investment (ROI)?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency and profitability of an investment.

ROI is calculated by dividing the net profit from an investment by the cost of the investment and expressing it as a percentage.

Understanding ROI helps investors compare the effectiveness of different investments and make informed decisions about where to allocate capital.

A positive ROI indicates that the investment generated profit, while a negative ROI shows a loss on the investment.

ROI is widely used across various investment types, from stocks and bonds to real estate and business ventures.

While ROI is a useful metric, it doesn’t account for the time value of money or investment risk, so it should be used alongside other financial metrics.

ROI calculations assume that all gains and costs are accurately measured and that the investment period is clearly defined.

Return on Investment (ROI) Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Gain from Investment} &= \mathrm{G}\newline\text{Cost of Investment} &= \mathrm{C}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Investment} = \mathrm{ROI} \newline = \frac{\mathrm{G} - \mathrm{C}}{\mathrm{C}} \times \mathrm{100{\%}}\end{gather*}

Return on Investment (ROI) Calculation Examples

Example 1

An investor purchases stocks for $10,000 and sells them later for $15,000.

To evaluate the performance of this investment:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Gain from Investment}\space(\mathrm{G}) &= \mathrm{{\$}15{,}000}\newline\text{Cost of Investment}\space(\mathrm{C}) &= \mathrm{{\$}10{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Investment}\space(\mathrm{ROI})\newline\begin{aligned}&= \frac{\mathrm{G} - \mathrm{C}}{\mathrm{C}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}15{,}000} - \mathrm{{\$}10{,}000}}{\mathrm{{\$}10{,}000}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}5{,}000}}{\mathrm{{\$}10{,}000}} \times \mathrm{100{\%}}\newline&= 0.5 \times \mathrm{100{\%}}\newline&= \mathrm{50{\%}}\end{aligned}\end{gather*}

The return on investment is 50%, indicating that the investor earned a 50% return on their initial investment.

This means the investor earned $5,000 in profit on their $10,000 investment, making this a profitable investment.

Example 2

A business invests $12,000 in new equipment and generates additional revenue of $8,000 over the equipment's useful life.

Let's calculate the ROI for this capital investment:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Gain from Investment}\space(\mathrm{G}) &= \mathrm{{\$}8{,}000}\newline\text{Cost of Investment}\space(\mathrm{C}) &= \mathrm{{\$}12{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Investment}\space(\mathrm{ROI})\newline\begin{aligned}&= \frac{\mathrm{G} - \mathrm{C}}{\mathrm{C}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}8{,}000} - \mathrm{{\$}12{,}000}}{\mathrm{{\$}12{,}000}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{-{\$}4{,}000}}{\mathrm{{\$}12{,}000}} \times \mathrm{100{\%}}\newline&= -0.333 \times \mathrm{100{\%}}\newline&= \mathrm{-33.333{\%}}\end{aligned}\end{gather*}

The return on investment is -33.333%, indicating a negative return on this investment.

This suggests that the equipment investment did not generate sufficient returns to recover the initial cost, resulting in a loss of -33.333% on the invested capital.

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