ROI formula
Return on investment measures how much profit an investment generated relative to the amount invested. A higher percentage indicates more efficient use of capital, but it does not account for time horizon or risk by itself.
ROI = (Net Profit ÷ Total Cost) × 100
Net Profit = Final Value − Total Cost
Total Cost = Initial Investment + Additional Costs
Worked example
Investing $25,000 with $3,000 of additional costs, ending at a $35,000 value:
| Item | Amount |
|---|
| Total cost (25,000 + 3,000) | $28,000 |
| Final value | $35,000 |
| Net profit | $7,000 |
| ROI (7,000 ÷ 28,000) | 25.00% |
Invested vs. final value
Your total cost, your ending value, and the net profit between them. Updates as you change the inputs.
How it works
ROI compares net gain to the total amount invested. It tells you how efficiently the investment converted capital into profit, though it does not show the timing or risk of the return.
ROI = (Net Profit ÷ Total Cost) × 100
A higher percentage means stronger profit relative to the capital employed.
Frequently asked questions
What is a good ROI?
It depends on the investment type and time horizon. A strong ROI is one that exceeds your required return and is sustainable.
Does ROI include time?
No. ROI is a simple percentage measure and does not factor in how long it took to achieve the gain.
How is ROI different from profit?
Profit is the dollar amount gained, while ROI expresses that gain as a percentage of the cost base.
Should I use ROI alone?
It is useful, but pair it with risk, time, and cash-flow considerations for a fuller picture.
Can ROI be negative?
Yes. A negative ROI means the investment lost value after accounting for costs and any sale or transaction expenses.