Return on Investment (ROI) Calculator

Understanding ROI

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. It measures the amount of return on an investment relative to the investment's cost.

How is ROI Calculated?

The standard formula for ROI is:

ROI = (Final Value of Investment - Initial Investment) / Initial Investment * 100%

Annualized ROI provides a more comparable metric by showing the rate of return on an annual basis. This is especially useful for comparing investments held for different periods.

Frequently Asked Questions (FAQ)

What is a good ROI?

A "good" ROI is highly subjective and depends on the type of investment and its associated risk. For example, a 7-10% average annual return from the stock market is often considered good, while a real estate investment might aim for a different benchmark. The key is to compare the ROI to other potential investments with similar risk levels.

Why is Annualized ROI important?

Imagine one investment returned 20% in 5 years, and another returned 15% in just 1 year. While the first has a higher total ROI, the second one is clearly performing better on a yearly basis. Annualized ROI standardizes the return, allowing for a fair, "apples-to-apples" comparison.