ROI Calculator

ROI = (Amount returned − (Investment cost + Additional costs)) ÷ (Investment cost + Additional costs) × 100

Investment cost

The money put in, which must be greater than zero — against a cost of zero the ratio has no denominator

Additional costs

Everything else the deal consumed: fees, commissions, a refit, holding costs; it comes off the top and it also goes into the bottom

Amount returned

Everything the investment gave back, which may be zero but may not be negative — money paid out again belongs in the costs, not here

Net profit

The amount returned minus the two costs together; it is negative whenever the deal lost money

ROI

The net profit as a percentage of the total cost, with a floor of minus 100 percent at a total loss

Return multiple

The amount returned divided by the total cost, which is the same fact as the percentage: a multiple of 1.5 is a return on investment of 50 percent

Use it to score a completed deal, or to compare two deals of roughly similar size, when the timing does not matter much or is the same for both. It is the right measure for anything you can look up in a statement afterwards, and it is the measure most people mean when they ask whether something was a good investment. It is the wrong measure in three situations. It cannot compare a two year deal against a ten year one, because it ignores time entirely — a 40 percent return in two years is a much better outcome than 40 percent in ten, and only the annualized page can say so. It is not a decision rule for projects, because it ignores the rate money costs; the net present value page exists for that. And it says nothing about risk, so a 30 percent return on a coin flip and 30 percent on a Treasury are the same number here.

1. 10,000 in, 15,000 back, no extra costs

   1. Total cost: 10,000 + 0 = 10,000
   2. Net profit: 15,000 − 10,000 = 5,000
   3. ROI: 5,000 ÷ 10,000 × 100 = 50.00%
   4. Return multiple: 15,000 ÷ 10,000 = 1.5

   This is the page's default, and it is the case with no timing attached: the money went in and came back, and nothing here says whether that took one year or fifteen. The two outputs are one fact — the multiple minus one, times a hundred, is the percentage — so a page that showed only one of them would still be showing you the whole answer, just in the other unit.

2. The same deal with 500 of fees: 18.18%, not 20.00%

   1. Total cost: 5,000 + 500 = 5,500
   2. Net profit: 6,500 − 5,500 = 1,000
   3. ROI: 1,000 ÷ 5,500 × 100 = 18.18%
   4. Return multiple: 6,500 ÷ 5,500 = 1.1818

   The comparison worth doing is against the wrong answer, which is what you get if the extra cost only comes off the top: 1,000 ÷ 5,000 is 20.00 percent. Both numbers look like roughly a fifth, and the wrong one is the more flattering, which is exactly why the cost belongs in both places. If you leave this field at zero you get the naive calculation, so the field being visible is the point.

3. A deal that costs 1,000 extra and still loses money

   1. Total cost: 1,000 + 1,000 = 2,000
   2. Net profit: 1,500 − 2,000 = −500
   3. ROI: −500 ÷ 2,000 × 100 = −25.00%
   4. Return multiple: 1,500 ÷ 2,000 = 0.75

   The amount returned is larger than the investment cost, so by the crude rule of thumb this deal made money — and it did not, because it consumed 2,000 to return 1,500. Both figures have to move together on this one: a return on investment of minus 25 percent and a multiple of 0.75 are the same statement, and a page that showed a healthy looking number on one line and a loss on the other would be broken rather than merely imprecise.

Return on investment has three blind spots and it is worth knowing which one you are standing in. It ignores time completely, so it cannot compare deals of different lengths, and a 20 percent return is not comparable between a project that took one year and one that took eight. It ignores risk, so it treats a certain 10 percent and a speculative 10 percent identically. And it has no decision threshold built in: it tells you what happened, not whether it was worth doing, because worth depends on what else the money could have earned and that rate is not an input here. On top of that, the result is only as meaningful as the two amounts you typed. Nothing in this calculation knows about tax, so a return on investment measured before tax is not the one you keep; nothing knows about the value of your own time, which is a real cost that rarely appears in an invoice; and nothing handles intermediate cash flows, so a deal that paid you along the way should either be scored as a completed round trip or measured with an internal rate of return instead. Finally, the denominator must be positive — a project with no cost at all has no ratio to report.

How do I calculate return on investment?

Add the investment cost and any additional costs together, subtract that total from the amount returned to get the net profit, and divide the net profit by the same total. On 10,000 in and 15,000 back with no extra costs, the net profit is 5,000 and the return on investment is 50 percent, which is a return multiple of 1.5.

Do additional costs go in the numerator or the denominator?

Both. A fee or a holding cost reduces the amount you made and it also increases the capital you had tied up, so the net profit is the amount returned minus both costs, and the denominator is both costs added together. Counting 500 of fees against a 5,000 investment the one-sided way gives 20.00 percent; counting it properly gives 18.18 percent, and the difference is entirely in the direction that makes the deal look better.

Should I annualize the return on investment?

Not on this page, because it has no holding period to annualize over and adding one would turn a ratio into a rate. If you need the yearly figure, that is a different question with a different answer, and dividing the total return by the number of years is not it — the annualized return page computes the compounded rate and prints the naive division beside it so you can see the gap. Five years at 60 percent is 9.856 percent a year compounded, not 12.

What does a negative return on investment mean?

That the deal returned less than it consumed. The floor is minus 100 percent, which happens when the amount returned is zero: the net profit is then exactly the negative of the total cost, and the return multiple is exactly zero. Anything between minus 100 and zero is a partial loss, and a negative answer is a normal outcome rather than an input error — this page does not treat it as one.

Why show a return multiple when the percentage already says it?

Because they are the same fact in the two units people actually use, and the page cannot tell which one you came for. The multiple is the amount returned divided by the total cost, and the percentage is the multiple minus one, times a hundred, so a multiple of 1.5 and a return on investment of 50 percent are one number written twice. That identity is also a check: if the two ever disagreed in sign, the page would be inconsistent rather than merely rounded.

What is the difference between this and the annualized return page?

Time. Return on investment is a ratio with no period attached: what came back against what went in. Annualized return takes a total return and a holding period and reports the compounded yearly rate. A 60 percent gain is a return on investment of 60 percent whether it took one year or twenty, and only the annualized figure distinguishes those, which is why the two pages link to each other rather than one replacing the other.

• Publication 550 — Investment Income and Expenses (amount realized, adjusted basis, and how commissions and load charges enter the basis) — Internal Revenue Service (United States)
• Annual Return — Investor.gov glossary (the many ways an annual rate can be computed, and which of them is called the A.P.R.) — U.S. Securities and Exchange Commission, Investor.gov (United States)
• H.15 Selected Interest Rates — the published benchmark rates a computed rate is compared against — Board of Governors of the Federal Reserve System (United States)