ROI Calculator

Simple ROI Formula

ROI = (Final Value minus Initial Cost) divided by Initial Cost, multiplied by 100 to express as a percentage. A £10,000 investment that returns £14,500 generates an ROI of (14,500 - 10,000) / 10,000 × 100 = 45%. This tells you the total return relative to the amount invested. An annualised ROI (CAGR) is more useful for comparing investments of different durations: CAGR = (Final Value / Initial Value)^(1/years) - 1. A 45% total return over 3 years is a CAGR of approximately 13.2% per year.

Annualised ROI (CAGR)

CAGR = (Final Value / Initial Value)^(1/years) − 1. This is the better metric for comparing investments held for different periods. 45% over 3 years = 13.2% annualised — very comparable to typical equity market returns.

Opportunity Cost

Always compare ROI against alternatives. A 5% annual return looks good in isolation but poor versus a 10% index fund. The true question is always: what else could this money have earned?

ROI Limitations and Alternatives

ROI has important limitations. It ignores time — a 50% ROI over 10 years is far worse than 50% over 1 year. For time-adjusted comparisons, annualised ROI (CAGR) is more informative. It ignores risk — higher returns typically require higher risk. More sophisticated metrics: IRR (internal rate of return) accounts for timing of cash flows; NPV (net present value) accounts for the time value of money. For simple personal finance decisions ROI is useful; for business capital allocation, these refinem