ROI Calculator — Return on Investment & Annualized ROI

Free ROI Calculator

Return on investment is the simplest way to ask whether something was worth the money. This free ROI calculator takes what you put in, what it cost you along the way, what it is worth now, and how long your money was tied up — then reports both the total return and the annualized return, because those two numbers can tell very different stories.

It runs entirely in your browser, requires no sign-up, and nothing you type leaves your device.

How to Calculate ROI

The formula is straightforward: ROI = (Final value − Total cost basis) ÷ Total cost basis × 100.

The part people get wrong is the cost basis. It is not just the purchase price — it is everything the investment truly cost you. Fees, installation, training, maintenance, the consultant you hired to make it work. Leave those out and your ROI is flattering fiction. This calculator gives additional costs their own field for exactly that reason, and it tells you how many percentage points of ROI those costs consumed.

Total ROI vs. Annualized ROI

Total ROI has one enormous blind spot: it ignores time. A 45% return is excellent in one year and mediocre across ten. Comparing two investments on total ROI alone, without asking how long each took, is how people talk themselves into bad deals.

Annualized ROI — the compound annual growth rate, or CAGR — fixes this by expressing the return as a steady yearly rate: CAGR = ((Final value ÷ Cost basis) ^ (1 ÷ years)) − 1. It answers “what annual return would have produced this same result?” and lets you compare a three-year equipment purchase against a five-year one on equal terms.

A useful gut check: a 50% total return over five years is only about 8.4% a year — roughly what a passive index fund might have done with none of the effort or risk.

A Worked Example

Suppose you invest $50,000 in new equipment, spend another $5,000 on installation and training, and three years later the equipment plus the profit it generated is worth $80,000.

Total cost basis: $50,000 + $5,000 = $55,000.
Net gain: $80,000 − $55,000 = $25,000.
Total ROI: $25,000 ÷ $55,000 = 45.5%, a value multiple of 1.45×.
Annualized ROI: ($80,000 ÷ $55,000)^(1÷3) − 1 = about 13.3% per year.

That 45.5% headline shrinks to a much more sober 13.3% a year once time is accounted for. Notice too that had you ignored the $5,000 of additional costs, you would have reported a 60% ROI — nearly 15 percentage points of pure self-deception.

What Counts as a Good ROI?

There is no universal threshold, because return only means something next to risk and next to the alternatives. The right benchmark is your hurdle rate: the annual return you could reliably earn elsewhere, plus a premium for the extra risk you are taking.

If a business loan costs you 9% a year, an investment funded by that loan needs to clear 9% annualized just to break even in real terms — and comfortably more to be worth the effort and risk. If your alternative is paying down that debt, the debt is the benchmark. Compare annualized returns, never total ones.

What ROI Does Not Tell You

ROI is a scorecard, not a strategy. It says nothing about risk: a 20% return with a real chance of total loss is worse than a certain 10%. It ignores taxes and inflation, both of which quietly eat nominal returns. And this model assumes a single lump-sum investment held for the whole period with no money going in or out along the way.

If your investment involves staged contributions or irregular cash flows, ROI and CAGR will mislead you, and you want an internal rate of return instead. Over holding periods shorter than a year, annualized figures extrapolate a brief result across a full year and can look spectacular for no good reason — treat them with suspicion.

Frequently Asked Questions

How do you calculate ROI?

ROI = (Final value − Total cost basis) ÷ Total cost basis × 100. The cost basis should include the purchase price plus every additional cost — fees, installation, training, maintenance. A $55,000 basis returning $80,000 gives a net gain of $25,000 and an ROI of 45.5%.

What is annualized ROI (CAGR)?

Annualized ROI expresses your return as a steady yearly rate, so investments held for different lengths of time can be compared fairly. The formula is ((Final value ÷ Cost basis) ^ (1 ÷ years)) − 1. A 45.5% total return earned over three years works out to roughly 13.3% per year.

Why is my annualized ROI so much lower than my total ROI?

Because total ROI ignores how long your money was tied up. Spreading a gain across several years, with compounding, produces a much smaller annual figure. A 50% total return over five years is only about 8.4% a year. Always compare investments on the annualized number.

Should additional costs be included in ROI?

Yes. Anything you had to spend to obtain, install, or maintain the investment belongs in the cost basis. Excluding them inflates your ROI. In the worked example, omitting $5,000 of costs would overstate ROI as 60% instead of the true 45.5% — a gap of nearly 15 percentage points.

What is a good ROI for a small business investment?

It depends entirely on risk and on your alternatives. Measure any investment against your hurdle rate — the annual return you could get elsewhere at comparable risk, or the interest rate on debt you could pay down instead. If borrowing costs 9% a year, an investment must clear 9% annualized just to break even.