Finance Investing

ROI calculator

Amount invested
Value now or on exit
Years held
Return on investment 50 %
(15000 − 10000) ÷ 10000 over 3 years
Profit 5,000
Multiple 1.5×
Annualised return 14.471 %
Profit per year 1,666.67
Payback period 6 years
Annualise before comparing

A 50% return sounds identical whether it took one year or ten, and it is not remotely the same investment. Annualised, one year at 50% is 50% a year; ten years at 50% is 4.1% a year — below inflation for much of the last decade. Any comparison of returns over different holding periods that does not annualise first is comparing nothing at all.

Past returns say nothing about future ones. This is arithmetic on figures you supply, not investment advice.

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320 × 100

ROI is profit divided by cost. Turning 10,000 into 15,000 is a 50% return; spread over three years that annualises to 14.5% a year. Always annualise before comparing investments held for different lengths of time.

How to calculate ROI

1 Enter what you invested and what it is worth now.
2 Add the holding period in years.
3 Read the raw return and, more usefully, the annualised one.
4 Include costs and fees in the invested figure or the return is overstated.

Simple ROI ignores two things that usually matter. The first is timing: money returned early can be reinvested, which is why internal rate of return exists as a more rigorous measure for uneven cash flows. The second is what else you could have done with the money — a 6% return is excellent against cash and poor against a broad equity index over the same period. Neither of those makes ROI useless; they make it the beginning of an analysis rather than the end.

Questions

Subtract cost from final value, divide by cost, multiply by 100.

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