Investment ROI formula (the exact math)

ROI stands for Return on Investment. At its core, it is a ratio: how much you gained (or lost) compared to how much you put in. The simplest version looks like this:

• Total Cost = Initial Investment + Additional Contributions + Fees
• Net Profit = Final Value − Total Cost
• ROI (%) = (Net Profit ÷ Total Cost) × 100
• Multiple = Final Value ÷ Total Cost

Example: If your total cost is $5,000 and your investment ends at $6,000, then your net profit is $1,000 and your ROI is ($1,000 ÷ $5,000) × 100 = 20%. Your multiple is $6,000 ÷ $5,000 = 1.20×.

ROI is great for a quick snapshot, but it does not tell you how fast the growth happened. That’s where CAGR comes in: Compound Annual Growth Rate. CAGR answers: “If this investment had grown at a steady rate each year, what would that rate be?”

• CAGR = (Final Value ÷ Total Cost)^{(1 ÷ Years)} − 1

If the holding period is 0 or not provided, CAGR can’t be computed (because it’s a per-year metric). If the final value is below the total cost, CAGR will be negative — which is valid and often the clearest way to compare losses.

Some investors want “real” returns (after inflation). This calculator includes a simple inflation toggle. When enabled, it discounts the final value by inflation over the holding period (approximate):

• Inflation-adjusted final = Final Value ÷ (1 + inflation)^Years

This is a quick lens for “what your final value is worth in today’s dollars.” For detailed inflation work, use a dedicated inflation-adjusted return tool.

What this ROI calculator does step by step

This tool is designed to be simple enough for quick decisions, but detailed enough to compare investments fairly. Here’s the exact logic it uses:

Many ROI calculators only ask for an “initial investment” and a “final value.” That works when you invest once, but it fails when you add money later. This calculator lets you include contributions and fees so your ROI is based on the total dollars you actually committed.

Once the total cost is known, the math is direct: profit is final minus cost, ROI is profit divided by cost, and multiple is final divided by cost. These three numbers tell you the same story in different languages: dollars, percent, and “x‑multiple.”

If you enter a holding period in years, the calculator computes CAGR. This is especially useful when you’re comparing:

• A 40% return over 8 years vs a 25% return over 2 years
• A side project that doubled in 3 months vs an index fund that grew steadily for 5 years
• Two trades with the same profit but different time spent “in the market”

If you enable inflation, we discount the final value by your chosen inflation rate and recompute ROI/CAGR using the inflation-adjusted final value. This is a simplified model, but it’s often enough to answer: “Was I actually ahead after prices rose?”

ROI examples you can copy

Below are realistic examples you can use as a mental checklist. You can also plug these exact numbers into the calculator.

• Initial: $5,000
• Contributions: $0
• Fees: $0
• Final value: $6,250
• Years: 2

Total cost = $5,000. Profit = $1,250. ROI = 25%. Multiple = 1.25×. CAGR = (1.25)^(1/2) − 1 ≈ 11.80% per year. The key insight: a “25% return” sounds big, but annualized it’s about 12%/year.

• Initial: $2,000
• Contributions: $3,000
• Fees: $50
• Final value: $6,200
• Years: 3

Total cost = $2,000 + $3,000 + $50 = $5,050. Profit = $6,200 − $5,050 = $1,150. ROI = $1,150 ÷ $5,050 × 100 ≈ 22.77%. Multiple ≈ 1.23×. CAGR = (6,200 ÷ 5,050)^(1/3) − 1 ≈ 7.04% per year. This example shows why CAGR matters: ROI looks healthy, but annual growth is modest.

• Initial: $10,000
• Contributions: $0
• Fees: $0
• Final value: $7,900
• Years: 1.5

Total cost = $10,000. Profit = −$2,100. ROI = −21%. Multiple = 0.79×. CAGR = (0.79)^(1/1.5) − 1 ≈ −14.63% per year. Losses are painful, but CAGR makes it easier to compare “how bad” across different time spans.

Suppose you earned a 10% ROI over 1 year while inflation was roughly 5%. Your “real ROI” is closer to: (1.10 ÷ 1.05) − 1 ≈ 4.76%. That’s why inflation-adjusted returns matter when inflation is high.

Investment ROI Calculator FAQs

• What is a “good” ROI?

  It depends on risk and time. A 10% ROI in a month is very different from a 10% ROI over 5 years. That’s why investors often compare CAGR or “per-year return” instead of just ROI.

• Does ROI include dividends or interest?

  ROI includes whatever is inside your final value. If dividends were reinvested and are included in the final value, they’re included. If you received cash dividends separately, add them into the final value (or reduce total cost, depending on your accounting).

• Why can ROI be misleading with monthly contributions?

  Because ROI treats all dollars as if they were invested for the same amount of time. If you invested gradually, your “average time in the market” is shorter than the full period. A more precise metric for that situation is IRR (internal rate of return). Still, ROI is a useful top-level snapshot.

• What’s the difference between ROI and CAGR?

  ROI is the total return over the whole period. CAGR is the average compounded annual return. If your ROI is 50% over 5 years, your CAGR is much lower than 50% because it spreads that growth across the years.

• Can CAGR be negative?

  Yes. If your final value is less than your total cost, CAGR will be negative (a loss per year). That’s normal and often the best way to compare losses.

• Should I include taxes?

  If you want a personal, after-tax ROI, adjust your final value downward by taxes you owe (or include tax refunds). For a pre-tax comparison between investments, leave taxes out.

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