How ROI works
ROI measures profit relative to cost: ROI = (Final value − Investment) ÷ Investment × 100. Annualized ROI converts this to a yearly rate so you can fairly compare a 1-year trade with a 5-year business investment. A positive ROI means profit; negative means loss.
FAQs
How is ROI calculated?
ROI = (Final value − Initial investment) ÷ Initial investment × 100. For example, investing $1,000 and getting back $1,500 is a 50% ROI.
What is annualized ROI?
Annualized ROI converts the total return into an equivalent yearly rate: (1 + ROI)^(1/years) − 1. It lets you compare investments held for different periods.
What is a good ROI?
It depends on the investment. Stock markets average ~7–10% annualized; small businesses often target 20%+; ad campaigns may target 300%+ (4x ROAS).
Is this ROI calculator free?
Yes, 100% free with no signup. All calculations run in your browser.
What is the difference between ROI and profit margin?
ROI measures profit relative to what you invested: (profit ÷ investment) × 100. Profit margin measures profit relative to revenue: (profit ÷ revenue) × 100. A shop can have a thin 5% margin but a great ROI if it turns its small inventory investment over rapidly.
Can ROI be negative?
Yes — a negative ROI simply means you lost money. An ROI of −25% means the investment returned only 75% of what you put in. Negative ROIs are useful: they let you rank losing options honestly instead of calling everything “about break-even.”
Why is annualized ROI better for comparing investments?
Because simple ROI ignores time. A 30% return in one year and a 30% return in five years are wildly different investments, but simple ROI reports both as “30%.” Annualized ROI converts each to a per-year rate, so different holding periods become directly comparable.