ROI Calculator
Calculate Return on Investment (ROI), Compound Annual Growth Rate (CAGR), and total wealth multiplier for any asset or project.
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What Is a ROI Calculator?
Return on Investment (ROI) is a fundamental financial performance metric used to evaluate the efficiency and profitability of an investment or compare the returns of multiple distinct capital allocations. When measured over multiple years, Compound Annual Growth Rate (CAGR) standardizes returns into an annualized rate.
How to Use This Calculator
- Enter the initial capital invested (Initial Cost or Investment).
- Enter the final value or total revenue received upon exit.
- Specify the holding duration in years to calculate annualized CAGR.
- View total percentage ROI, annualized return, net dollar gain, and the investment multiplier.
ROI and Annualized CAGR Formulas
\text{ROI} = \left(\frac{V_{\text{final}} - V_{\text{initial}}}{V_{\text{initial}}}\right) \times 100 \quad ; \quad \text{CAGR} = \left[\left(\frac{V_{\text{final}}}{V_{\text{initial}}}\right)^{\frac{1}{t}} - 1\right] \times 100Simple ROI measures total percentage change over the holding period, while CAGR determines the smooth geometric annual growth rate required to grow from initial to final value in t years.
Worked Example
Scenario: Investing $20,000 into a venture fund that matures to $36,000 after 4 years.
Net Capital Gain: $36,000 - $20,000 = $16,000.00.
Total Simple ROI: ($16,000 ÷ $20,000) × 100 = 80.00%.
Annualized CAGR: (36,000 / 20,000)^(1/4) - 1 = (1.80)^0.25 - 1 = 15.83% per year.
Wealth Multiplier: 36,000 ÷ 20,000 = 1.80x.
Tips & Key Notes
- Always evaluate CAGR alongside simple ROI when comparing investments held for different time horizons.
- Remember that higher potential ROI almost always entails higher risk and potential volatility.
- Factor inflation into long-term investments to gauge your "real" purchasing power return.
Frequently Asked Questions
What is the difference between simple ROI and annualized ROI (CAGR)?
Simple ROI tells you the total percentage gain regardless of how many days, months, or years it took. Annualized ROI (CAGR) normalizes that performance to a per-year basis, allowing fair comparisons across different asset classes.
What is considered a "good" ROI for an investment?
A standard benchmark is the historical average annual return of the S&P 500 index, which has historically averaged around 7% to 10% before inflation. Real estate typically targets 8%–12%, while high-risk venture capital may target 25%+.
Can ROI be negative?
Yes. If the final value of your asset is lower than what you paid, your ROI will be negative, representing a net financial loss on invested capital.
Does ROI include dividends, rent, or maintenance costs?
For total accurate ROI, all cash inflows (dividends, rental yields) and outflows (maintenance, property taxes, commissions) should be incorporated into the final value calculation.
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