What this calculator measures
Return on investment compares the net value created by an investment with the money required to make it. A positive percentage means the recorded return exceeded the recorded cost; a negative percentage means it did not. The useful part is not the percentage alone, but the cost boundary you define before calculating it.
This calculator includes an initial cost, recurring annual costs and a time period. It also reports annualized ROI, which makes projects held for different lengths of time easier to compare. It does not decide whether the risk, timing or quality of those returns is acceptable.
How to use the ROI Calculator
- Enter the initial investment and any recurring annual costs.
- Enter the total return or measurable value produced and the number of years.
- Review net return, total ROI, annualized ROI and the break-even return.
Total cost equals the initial investment plus recurring annual costs across the selected period. Annualized ROI converts the total growth multiple into an equivalent yearly rate.
Worked example
If a project costs $10,000 initially, requires $1,000 a year for two years and returns $16,000, total cost is $12,000. Net return is $4,000 and ROI is 33.33%.
Assumptions and limitations
- Use cash flows from the same period and the same currency.
- The model does not discount future cash flows or price project risk.
- Soft benefits should only be included when they have a defensible monetary value.
- Annualized ROI is not the same as an audited investment performance measure.