How to Calculate Return on Investment (ROI)

ROI measures the profitability of an investment as a percentage of its original cost. It is one of the most widely used metrics in finance and business.

The Formula

ROI = (Net Profit / Cost of Investment) x 100

Where:

ROIReturn on Investment — Percentage gain or loss on investment
Net ProfitNet Profit — Final value minus initial cost
CostCost of Investment — Total amount originally invested

Step-by-Step Example

Here's how to calculate return on investment (roi) step by step:

  1. 1Find net profit: Subtract the initial investment cost from the final value.
  2. 2Divide by cost: Divide the net profit by the original investment cost.
  3. 3Convert to percentage: Multiply the result by 100 to express ROI as a percentage.

Following these 3 steps gives you the final return on investment (roi) value.

Skip the Math

If you invest $5,000 in stocks and sell for $6,500, your net profit is $1,500. Your ROI is ($1,500 / $5,000) x 100 = 30%.

Use the Free Calculator

Why You Need This Calculation

  • ROI lets you compare the efficiency of different investments on a level playing field.

Common Mistakes

Ignoring fees and transaction costs.

Subtract all associated costs from your net profit before calculating.

Not accounting for the time period.

Annualize ROI when comparing investments held for different durations.

Confusing ROI with total return.

ROI is a percentage ratio, not the dollar amount gained.

Frequently Asked Questions