Investment
Return on Investment (ROI) Calculator
Calculate the return on investment for any business project or investment. Enter your initial investment and final value to see your ROI percentage, annualized return, and total profit.
How the Formula Works
ROI is calculated as: (Final Value - Initial Investment) ÷ Initial Investment × 100. The annualized ROI uses the compound annual growth rate (CAGR) formula: (Final Value ÷ Initial Investment)^(1/years) - 1. This accounts for the time value of money and allows fair comparison between investments of different durations.
When to Use This Calculator
Use this calculator when evaluating capital expenditures, marketing campaigns, technology investments, M&A targets, or any business initiative where you need to compare the expected return against the cost. An ROI above your company's weighted average cost of capital (WACC) indicates the investment creates value.
Frequently Asked Questions
What is a good ROI for a business investment?
A 'good' ROI depends on the risk and time horizon. For low-risk investments like equipment upgrades, 10-15% annually is typically acceptable. For higher-risk ventures like new product launches, companies often target 25%+ ROI. Any investment should exceed your company's cost of capital (typically 8-12%) to create shareholder value.
What is the difference between ROI and CAGR?
ROI shows total return regardless of time, while CAGR (Compound Annual Growth Rate) shows the annualized return. A 50% ROI over 5 years is different from 50% ROI over 1 year. CAGR normalizes returns to a per-year basis, making it easier to compare investments with different time horizons.
Should I use ROI or NPV for capital budgeting?
NPV (Net Present Value) is generally preferred for capital budgeting because it accounts for the time value of money and the size of cash flows. ROI is simpler and useful for quick comparisons, but it can be misleading when comparing projects of different sizes or cash flow timing. Use ROI for screening and NPV for final decisions.