Return on Investment Calculator

Return on Investment Calculator

Return on investment (ROI) is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost — most commonly measured as net income divided by the original cost of the investment. The higher the ratio, the greater the benefit earned.

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Return on investment (ROI) is one of finance’s most widely used metrics. Whether you’re analyzing a project, asset purchase, or portfolio return, ROI helps quantify the benefit gained relative to the cost. While the classic formulas are:

• ROI = Net Income / Cost of Investment

• ROI = Investment Gain / Investment Base

ROI can also be calculated in several other ways, depending on the investment’s structure, duration, and nature.

The CFI Return on Investment Calculator includes four ROI methods, each offering a unique lens for evaluating investment performance:

1. Net Income ROI: This approach divides net income by the original cost of the investment. It’s ideal for projects or assets that generate steady profits. Use this method when you’re assessing operational returns, such as rental income, business earnings, or other recurring revenue sources.
2. Capital Gain ROI: This method measures the change in value between purchase and sale, focusing solely on appreciation. This method is useful when you’ve sold an asset, like mutual funds or property, and want to calculate your gain from price movement alone.
3. Total Return ROI: Total return combines capital gains with income (dividends, interest, etc.) to reflect complete performance. Use this method when comparing different asset types and wanting a full picture of the total value generated.
4. Annualized ROI: This adjusts ROI to reflect time held, making it easier to compare short- and long-term investment return on an equal basis. Use this method when you’re weighing annual investments of varying durations and need a time-adjusted, apples-to-apples metric.

The image below previews what you’ll find in the downloadable investment return calculator template. Once downloaded, you can enter your own values across each ROI method and explore how time, additional investments, and income streams affect results.

Download the free Return on Investment Calculator to see how small changes in timing or earnings can lead to major differences in overall return.

Download the Free ROI Calculator Template

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Key Terms to Know When Using an ROI Calculator

Before inserting figures into the investment ROI calculator, it’s essential to understand the terms that shape how return is measured and interpreted. Here are key terms to familiarize yourself with:

• Initial Investment: The original amount of capital allocated to an asset or project. This figure serves as the base for measuring return.
• Return on Investment (ROI): A ratio measuring the gain or loss generated relative to the initial cost is typically expressed as a percentage.
• Net Profit: The earnings remaining after all expenses, such as fees, taxes, and operating costs, have been subtracted from revenue.
• Final Value (Ending Value): The investment’s final total at the end of the holding period, including both gains and any income received.
• Time Horizon: The length of time the investment is held. It directly influences risk exposure, compounding potential, and ROI interpretation.
• Annualized Return: ROI adjusted for the time period, allowing you to compare investments held over different durations every year.
• Compound Interest: Interest is calculated on both the initial principal and accumulated earnings. Compounding accelerates returns over time and is key to long-term growth.

What is Considered a Good Return on Investment?

A “good” ROI depends on the investment type, risk tolerance, and market conditions. There’s no one-size-fits-all benchmark. Still, some general ranges can help set expectations:

• Index Funds Average: 7–10% annually (after factoring for inflation rate)
• Government Bonds: 2–5%
• Savings Accounts and CDs: 1–3% depending on interest rates
• High-Risk Assets (e.g., startups, private equity): 15% + potential, but with higher volatility

Use the Return on Investment Calculator to model both conservative and aggressive investment risk. Adjust for time, compounding, and income to see how changes affect your returns. However, past performance doesn’t guarantee future results, regardless of how well an instrument has gained. Continually evaluate returns in the context of your whole financial strategy and long-term goals.

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