ROI (Return on Investment) measures the profitability of an investment as a percentage of the original cost. Formula: ROI = (Net Profit ÷ Cost of Investment) × 100. A positive ROI means the investment made money; negative means a loss.

What is CAGR and how is it different from ROI?

CAGR (Compound Annual Growth Rate) is the annualised version of ROI. While ROI shows total return regardless of time, CAGR shows the equivalent annual growth rate. Formula: CAGR = (Final Value ÷ Initial Value)^(1÷years) − 1. CAGR is more useful for comparing investments held for different lengths of time.

A good ROI depends on the investment type and time period. The S&P 500 has historically returned around 10% annually. Real estate typically returns 8–12% annually. A general benchmark is whether the ROI exceeds the rate of inflation (typically 2–4%) and the risk-free rate (e.g. savings account rate).

ROI Calculator

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From the Blog

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What Is ROI? Return on Investment Formula & Examples

ROI explained — the formula, a worked example, its limitations, and when to use CAGR instead.

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ROI: The Most Used and Most Abused Number in Money

Built and verified by Andrius R. · Updated June 2026

Return on investment is beautifully simple — which is exactly why it's so easy to weaponize. The formula takes one line; the honesty lives in what you put into it. Here's the formula, its blind spots, and the upgrades that fix them.

The basic calculation

Worked example

Invest $5,000, end with $6,200:

ROI = (6,200 − 5,000) ÷ 5,000 = 0.24 = 24%

Clean and comparable — until someone asks the question ROI can't answer: 24% over how long?

Blind spot #1: time — and the annualized fix

If that 24% took three years, the fair comparison number is the annualized return (CAGR): (1 + 0.24)^1/3 − 1 = ~7.4% per year. Suddenly an alternative paying 15% in a single year is clearly better, even though "24 beats 15" reads the other way. Note the compounding in the formula — dividing 24% by 3 to get "8% a year" is the common shortcut and it's wrong, increasingly so for bigger numbers and longer periods. Any ROI quoted without a time period is an advertisement, not an analysis.

Blind spot #2: incomplete costs

ROI is only as honest as its denominator and numerator. The classic example is property: a rental bought for $200,000 earning $1,400/month is not an 8.4% return. Add purchase costs (say $15,000) to the denominator and subtract real operating costs — maintenance, insurance, property tax, management, vacancy, easily $500/month — from the numerator, and the same deal computes to (900 × 12) ÷ 215,000 = ~5.0%. The pattern generalizes: transaction fees, taxes, your own time, and ongoing costs all belong in the calculation, and almost every glossy ROI you're shown has quietly omitted several of them.

Blind spot #3: leverage cuts both ways

Worked example — the same rental, bought with 20% down

Cash invested: $40,000 down + $15,000 costs = $55,000. The $160,000 mortgage at 6.5% costs ~$1,011/month — so monthly cash flow is 1,400 − 500 − 1,011 = −$111. Cash-on-cash return: roughly −2.4% per year before any appreciation.

The honest 2026 lesson: at today's rates, leverage turns a mediocre 5% deal into a money-losing one — while the same leverage at 2021's rates flattered identical deals into double digits. Borrowed money multiplies outcomes in both directions; an ROI computed on leveraged gains without showing the unleveraged version is the oldest trick in real-estate marketing.

What ROI still can't see

Risk: a 7% government-bond-like return and a 7% speculative bet are not equal offers. ROI has no risk dimension; comparing returns without comparing risk is comparing nothing.
Opportunity cost: every return should be benchmarked against the boring alternative — what a broad index fund (historically ~7% real, see the investment calculator) or even a savings account would have paid for zero effort.
Inflation: a 5% ROI during 6% inflation is a real-terms loss wearing a positive sign.

A 60-second checklist before believing any ROI

Over what time period — and what's the annualized figure?
Are all costs in (fees, taxes, upkeep, your hours)?
Is it leveraged, and what does the unleveraged version look like?
What's the risk, and what would the boring alternative have returned?
Is it before or after inflation?

Run the numbers through the calculator above with the complete inputs — the gap between advertised and honest ROI is usually the most informative number of all.

How ROI is Calculated

Return on Investment (ROI) expresses how much profit or loss an investment has generated relative to its cost. It is one of the most widely used financial metrics for evaluating investment performance.

ROI = (Final Value − Initial Investment) ÷ Initial Investment × 100
CAGR = (Final Value ÷ Initial Value) ^ (1 ÷ Years) − 1

ROI shows total return regardless of time. CAGR (Compound Annual Growth Rate) converts the total return into an equivalent annual rate — making it more useful when comparing investments held for different periods. A 50% ROI over 10 years is very different from 50% over 2 years, and CAGR makes that distinction clear.

Disclaimer: CalculatorXP calculators are for informational purposes only and do not constitute financial advice. Past performance is not a reliable indicator of future results. Always consult a qualified financial adviser before making investment decisions.