Free Return on Investment (ROI)

Defining ROI

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is universally expressed as a percentage, answering a simple question: for every dollar I put in, how much did I get back?

The Calculation

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. Specifically: (Current Value of Investment - Cost of Investment) / Cost of Investment. If you buy a stock for $100 and sell it for $120, your ROI is 20%.

Annualized ROI

Raw ROI can be misleading if not contextualized by time. A 20% ROI over 1 year is incredible; a 20% ROI over 10 years is terrible. Annualized ROI calculators normalize the return rate to a yearly timeframe, allowing investors to directly compare the performance of short-term flips against long-term holds.