How to Calculate ROI (and Annualized ROI)

Published October 11, 2026

Free tool: ROI Calculator→

Return on investment, or ROI, answers a simple question: for every dollar you put in, how much did you get back? It works for shares, a rental property, a new machine or a marketing campaign, which is why it's one of the most used numbers in finance. This guide shows the formula, how to turn it into a yearly figure, and the common mistakes, with examples you can check in the free ROI Calculator.

The ROI formula

ROI = (amount returned − amount invested) ÷ amount invested × 100

The amount returned is everything you got back: the final value plus any income along the way, after fees.

Example: you invest $10,000 and end up with $15,000.

• Net gain: $15,000 − $10,000 = $5,000
• ROI: $5,000 ÷ $10,000 × 100 = 50%

A negative ROI is a loss: $10,000 that shrinks to $8,000 is an ROI of −20%.

Why time matters: annualized ROI

ROI ignores how long the money was tied up. A 50% return in 3 years is excellent; the same 50% over 20 years is poor. To compare investments of different lengths, convert ROI into a yearly rate:

Annualized ROI = (amount returned ÷ amount invested)^(1 ÷ years) − 1

For the $10,000 that became $15,000 over 3 years: 1.5^(1/3) − 1 = 14.47% a year. Here's the same 50% total return spread over different periods:

Annualized ROI is the same as the compound annual growth rate (CAGR); the CAGR Calculator works it out from a start and end value too.

ROI beyond investing

The same formula works for business decisions. If a $2,000 advertising campaign brings in $5,000 of extra gross profit, its ROI is ($5,000 − $2,000) ÷ $2,000 = 150%. Use profit, not revenue, as the return; revenue includes the cost of the goods you sold and would overstate the result.

Common ROI mistakes

• Leaving out costs. Include fees, commissions, taxes you paid, and running costs such as repairs on a rental.
• Forgetting income. Dividends, interest and rent belong in the amount returned.
• Comparing total ROI across different time spans. Annualize first.
• Ignoring risk. Two investments with the same ROI can carry very different chances of loss.
• Using simple ROI for many cash flows. If you added and withdrew money at different times, the IRR Calculator gives a fairer return.

Projecting future ROI

You can also estimate the ROI of a plan before you start. Investing $10,000 plus $500 a month for 20 years at an assumed 7% a year:

• You put in $10,000 + $500 × 240 = $130,000
• The account grows to about $300,851
• The projected ROI is $170,851 ÷ $130,000 ≈ 131%

The assumed return is the big unknown, so try a few rates to see the range.

How to use the ROI Calculator

1. Open the ROI Calculator.
2. To measure an investment you've made, keep Calculate ROI selected and enter the amount invested, the amount returned and the holding period in years (decimals work: 1.5 is 18 months).
3. Read the results: the ROI, the net gain, the annualized ROI, the money multiple (amount returned ÷ amount invested) and a table showing what the same total return would mean per year over other periods.
4. To plan ahead, choose Project future ROI and enter a starting amount, a monthly contribution, an expected annual return, the number of years and the compounding frequency. You'll see the future value, the total invested, the returns, the ROI, a growth chart and a year-by-year table.

Frequently asked questions

What is a good ROI?

It depends on the risk and the time involved. Compare an investment's annualized ROI with alternatives of similar risk: a savings account, a broad stock index fund, or your cost of borrowing. Beating inflation is the minimum for a real gain.

What's the difference between ROI and annualized ROI?

ROI is the total return over the whole holding period; annualized ROI converts it into an average yearly rate, so investments held for different lengths of time can be compared.

Can ROI be negative?

Yes. A negative ROI means you got back less than you put in. An ROI of −100% means the investment was lost entirely.