Question 1

What is the ROI formula?

Accepted Answer

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment × 100. For example, if you invest $1,000 and sell for $1,500, your gain is $500 and your ROI is 50%. ROI is typically expressed as a percentage. The formula doesn't account for time, so for multi-year investments, use annualized ROI instead.

Question 2

What's the difference between ROI and annualized ROI?

Accepted Answer

ROI is the total percentage return over the entire investment period. Annualized ROI is the equivalent yearly rate that would produce the same total return. For example, a 100% ROI over 5 years = 14.87% annualized ROI (1.0 = (1.1487)^5). Annualized ROI allows comparison across different time periods.

Question 3

What's a 'good' ROI?

Accepted Answer

It depends on context. Stock market average annual return is ~10% (7% adjusted for inflation). Real estate averages 8-12%. Venture capital aims for 25%+ (with high risk). Business investments typically target 15%+ ROI. For marketing campaigns, 5:1 ROI (500%) is considered strong. Compare ROI against the risk-free rate (Treasury bonds, ~4-5%) and the relevant benchmark.

Question 4

Does ROI account for inflation?

Accepted Answer

Standard ROI does not — it's a nominal return. To get real ROI (adjusted for inflation), use: ((1 + nominal ROI) / (1 + inflation rate) - 1) × 100. For example, 10% nominal ROI with 3% inflation = 6.8% real ROI. Always use real ROI for long-term comparisons (5+ years) where inflation significantly distorts the numbers.

ROI Calculator — Return on Investment

ROI Calculator

How to use this tool

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ROI Calculator

How to use this tool

Frequently Asked Questions

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