ROI Calculator

Return on investment (ROI) is a financial metric used to evaluate the profitability or efficiency of an investment. It measures the return relative to the investment's cost, expressed as a percentage. ROI is a simple and intuitive measure that allows for quick comparison between different investment opportunities.

The basic formula divides the net profit (gain minus cost) by the cost of investment. For multi-year investments, the annualized ROI provides a more meaningful comparison by adjusting for the time period. Annualized ROI represents the average annual return over the investment period.

While ROI is widely used, it has limitations. It does not account for the time value of money, risk, or the holding period when not annualized. More comprehensive metrics such as net present value (NPV) and internal rate of return (IRR) address some of these shortcomings.