What is the ROI formula?

ROI% = (final value − initial cost) ÷ initial cost × 100. The companion net-profit figure is final value − initial cost. A $500 gain on a $1,000 cost is a 50% ROI; a $400 loss on a $2,000 cost is a −20% ROI.

What is annualized ROI (CAGR) and how is it different?

Annualized ROI, or compound annual growth rate, is ((final value ÷ cost)^(1 ÷ years) − 1) × 100. It spreads the total growth evenly across the years you actually held the investment, which plain ROI does not. A 50% total gain over 3 years works out to about 14.47% per year.

Does this ROI calculator account for fees, taxes, or inflation?

No. It reports gross ROI and profit from only the cost and final value you enter, and it assumes the gain is fully realized. Trading fees, taxes, inflation, and opportunity cost are not deducted, so treat the output as a quick estimate and verify your real net return with a licensed professional.

Can the ROI formula give a negative number?

Yes. Plain ROI returns a negative percentage whenever the final value is below the cost — for example, a $2,000 cost that ends at $1,600 is a −20% ROI and a $400 loss. The annualized version cannot be computed when the final value is at or below zero, so the calculator rejects that case rather than reporting it.

ROI Calculator Formula: Plain ROI and CAGR Explained

The ROI calculator formula is ROI% = (final value − initial cost) ÷ initial cost × 100, and the calculator reports that percentage alongside net profit (final value − initial cost). It is the most widely used yardstick for comparing investments because dividing profit by cost normalizes gains against the amount you put in, putting a $500 profit on a $1,000 stake on the same percentage scale as a $50,000 profit on a $100,000 stake. The result is a single percentage that lets you line up a stock trade, a rental property, a marketing campaign, or a side project side by side, regardless of how much money each one required. The ROI Calculator on this site handles the arithmetic the moment you type in your cost and final value, so you do not have to do the division by hand, and a single optional field — the holding period in years — flips on a second formula, the annualized return (CAGR), that puts the result on a per-year basis.

Below is a walk-through of both formulas the calculator uses — the plain ROI percentage and the annualized version — along with one worked numeric example, the assumptions baked into the math, and when to reach for plain ROI versus CAGR. If you just want to plug in two numbers and read the result, jump straight to the calculator.

The ROI Calculator Formula, Written Out

Return on investment is a ratio, not a dollar amount, and the standard version is built from two figures you already know: how much you put in, and what it is worth now (or what you sold it for). Written out, the formula is:

ROI% = (final value − initial cost) ÷ initial cost × 100

Each piece does a specific job. "Initial cost" is the denominator, which is why it must be greater than zero — you cannot divide by nothing. "Final value" is the current worth of the investment or the proceeds you received when you sold it. The difference between them is the profit or loss, and dividing that difference by the cost scales the gain so that a small return on a small stake is comparable to a small return on a large stake. Multiplying by 100 turns the decimal into a percentage.

The sign of the percentage carries the verdict. A positive ROI means you made money. A zero ROI means you broke even — the final value equals the cost. A negative ROI means you lost money; for instance, a $2,000 cost that ends at $1,600 is (−$400 ÷ $2,000) × 100 = −20% ROI. The calculator pairs the percentage with net profit (final value − initial cost), so you can read the dollar change and the percentage at the same glance.

How the Calculator Applies the Formula

Using the calculator is a matter of typing in the two numbers the formula needs; the page does the rest on the spot.

Enter the initial cost — the total amount of money you invested, in dollars.
Enter the final value — what the investment is worth now or what you sold it for.
Read the ROI percentage and net profit instantly; optionally add a holding period in years to also see the annualized ROI (CAGR).

Everything runs locally in your browser, so the cost and final value you type never leave the device. That detail matters when you are pricing out a private deal, a campaign budget, or a position you are not ready to share. For a deeper look at the inputs that feed the formula, see the core formula walkthrough.

Annualized ROI: The CAGR Formula Behind the Numbers

Plain ROI has one well-known blind spot — it ignores time. Turning $1,000 into $1,500 is a 50% return whether it took one year or ten, even though the second case is a much weaker investment. The annualized version of the formula fixes that by asking a different question: what steady yearly rate would grow the cost into the final value over the number of years you actually held the position? That rate is the compound annual growth rate, or CAGR.

Annualized ROI% = ((final value ÷ cost)^(1 ÷ years) − 1) × 100

The exponent "1 ÷ years" spreads the total growth evenly across each year of the holding period, and the minus-one step converts the growth multiple back into a per-year percentage. The Wikipedia article on return on investment covers the same compound-growth derivation in more detail. For the calculator to compute this, the cost must be positive, the final value must be positive (you cannot take a fractional root of a negative base), and the holding period must be greater than zero — if any of those conditions is violated, the annualized figure is rejected rather than reported as an error.

Walking Through the Formula With Real Numbers

To make both formulas concrete, take one straightforward example. You buy an asset for $10,000 and sell it for $20,000 after 10 years. Two numbers fall out of the math.

Plain ROI. Net profit is $20,000 − $10,000 = $10,000. ROI% is ($10,000 ÷ $10,000) × 100 = 100%. The headline figure says you doubled your money, which is true — but the headline says nothing about the decade it took to do it.

Annualized ROI. The growth multiple is $20,000 ÷ $10,000 = 2. Raise 2 to the power of 1 ÷ 10, which is 2^0.1 ≈ 1.07177. Subtract 1 to get 0.07177, then multiply by 100. The result is about 7.18% per year. That single-digit figure is the number you can compare to a savings account, a bond yield, or the long-run return of a benchmark index, which is exactly the comparison plain ROI cannot make.

Notice how the two answers describe the same investment very differently: 100% total return versus 7.18% per year. The discrepancy is not a flaw in either formula — they are answering different questions. Plain ROI answers "how much did I make?", and CAGR answers "how fast did it grow on average each year?"

Limits the ROI Formula Does Not Cover

The formulas above are deliberately simple, and that simplicity comes with limits worth knowing before you act on the result.

Fees and commissions. Trading costs, broker fees, and platform charges are not subtracted from the final value. A 20% gross ROI on a position that paid 2% in round-trip fees is really an 18% net return.
Taxes. Capital gains, dividend, or income tax is not deducted, and the gain is treated as fully realized even if you have not sold.
Inflation. A 7% nominal CAGR over ten years is not the same as a 7% real return once consumer prices are netted out; an inflation calculator can show what that gap looks like.
Opportunity cost. The return you could have earned on a benchmark, a different asset, or a risk-free rate is not compared against the result.
Cash flows in between. The plain formula assumes you bought once and sold once. If you added to the position, took distributions, or reinvested dividends, you need an internal-rate-of-return calculation instead.

For regular deposits that compound over time — the way a savings account, a 401(k) contribution, or an index-fund DCA plan actually behaves — the compound interest calculator is the better tool, because it models periodic contributions that the ROI formula does not.

Plain ROI vs. Annualized ROI: When to Use Each

Both formulas have a job. The table below lines them up against the situations where each one is the right fit.

Use case	Better formula	Why
Comparing two flippers sold within weeks of each other	Plain ROI	Holding periods are similar, so the time factor roughly cancels out.
Comparing a 1-year trade to a 10-year investment	Annualized ROI (CAGR)	Plain ROI hides the fact that the longer hold delivered a much weaker per-year return.
Evaluating a one-off marketing campaign	Plain ROI	The campaign length is short and the spend is one-shot; CAGR adds noise rather than insight.
Benchmarking a long-term portfolio against an index	Annualized ROI (CAGR)	Indexes are quoted in annual terms, so CAGR is the only way to make the comparison apples-to-apples.
Quick gut-check on a deal before signing paperwork	Plain ROI	Fastest read on whether the deal is in the right ballpark; revisit with CAGR once the timeline is set.

As a rule of thumb, reach for plain ROI when the holding periods you are comparing are close, and reach for CAGR whenever you would otherwise be comparing a sprint to a marathon. The calculator lets you see both side by side — type in the holding period and the annualized line appears next to the plain ROI line, so you never have to choose one and lose the other.

The figures produced here are estimates for general information only and are not financial advice; verify any decision-driving numbers with a licensed professional.