How ROI and annualized return are calculated
The calculator works out two rates from the same three amounts.
- Find the total cost. Add any extra costs, such as fees, shipping or repairs, to the amount invested.Total cost = amount invested + additional costs
- Find the net profit. Take the total cost away from the amount returned. A minus figure is a loss.Net profit = amount returned − total cost
- Work out ROI. ROI means return on investment: the profit as a percent of what you put in.ROI = net profit ÷ total cost × 100
- Work out the annualized return. This is the steady yearly rate that would turn your total cost into the amount returned over the holding period. It is also called the compound annual growth rate, or CAGR.Annualized return = (amount returned ÷ total cost) ^ (1 ÷ years) − 1
If you enter dates, the calculator counts whole years by anniversaries and turns the leftover days into a part of a year. The simple average shown next to the annualized return is ROI divided by the years. It is there so you can see how much it overstates a gain that took several years.
Worked examples
An investor: $8,000 that became $11,400 in 6 years
Bought for $8,000, with $40 of trading fees over the period, and sold for $11,400.
- Total cost$8,040
- Amount returned$11,400
- Net profit$3,360
- ROI41.8%
- Holding period6 years
- Simple average (ROI ÷ years)6.97% a year
- Annualized return5.99% a year
A shop owner: a 3-month ad campaign
The ads cost $4,000 and the design work $600. The extra sales produced $7,300 of profit before the ad costs. Three months is 0.25 of a year.
- Total cost$4,600
- Amount returned$7,300
- Net profit$2,700
- ROI58.7%
- Holding period0.25 years
- Simple average (ROI ÷ years)234.78% a year
- Annualized return534.25% a year
A contractor: a machine kept for 4 years
The machine cost $18,000 plus $1,500 to install. Over 4 years it brought in $24,000 of extra profit and was then sold for $7,200, so $31,200 came back.
- Total cost$19,500
- Amount returned$31,200
- Net profit$11,700
- ROI60%
- Holding period4 years
- Simple average (ROI ÷ years)15% a year
- Annualized return12.47% a year
The ad campaign shows the limit of annualizing a short period. The yearly figure is huge because it assumes the same result four times in a row, each on a bigger sum. For a one-off, ROI is the more honest number.
Total ROI as an annualized return
Find your total ROI on the left and the time it took along the top. Each cell is the yearly rate, compounded.
| Total ROI | Over 1 year | Over 3 years | Over 5 years | Over 10 years |
|---|---|---|---|---|
| 10% | 10% | 3.23% | 1.92% | 0.96% |
| 20% | 20% | 6.27% | 3.71% | 1.84% |
| 30% | 30% | 9.14% | 5.39% | 2.66% |
| 40% | 40% | 11.87% | 6.96% | 3.42% |
| 50% | 50% | 14.47% | 8.45% | 4.14% |
| 75% | 75% | 20.51% | 11.84% | 5.76% |
| 100% | 100% | 25.99% | 14.87% | 7.18% |
| 150% | 150% | 35.72% | 20.11% | 9.6% |
| 200% | 200% | 44.22% | 24.57% | 11.61% |
Doubling your money is a 100% ROI. Over 10 years, that is about 7.2% a year.
ROI or annualized return: which to use
- Use ROI for a single project with a clear start and end, when you want to know how much you made on what you spent.
- Use annualized return to compare things held for different lengths of time, or to compare your result with a yearly rate such as a savings account APY.
- Use both when someone quotes you a return. Ask how long it took before you judge the number.
When ROI misleads
- It ignores time. 50% in a year and 50% in a decade look the same.
- It ignores risk. Two results with the same ROI can come from very different chances of losing money. The SEC notes that all investments involve some degree of risk.
- It depends on what you count. Leave out fees, your own unpaid time or upkeep costs and the ROI looks better than it was.
- It hides money added or taken out along the way. The formulas here assume one amount in and one amount out.
- It looks back. A return already earned does not tell you what the next one will be.
How business owners and investors use it
For a business owner
Marketing spend. Put the campaign cost in as the amount invested. For the amount returned, use the profit on the sales the campaign produced, not the revenue. Revenue ignores what the goods cost you and makes every campaign look good.
Equipment. Add delivery, installation and training to the purchase price. For the amount returned, add up the extra profit or the costs saved over the years you keep it, plus what you can sell it for at the end. Then read the annualized figure, because equipment pays back over years.
For an investor
Enter what you paid, what you sold for or what the holding is worth now, and your trading costs. Count dividends or interest you received as part of the amount returned. If you added money over time, one ROI figure will mislead you, because later deposits had less time to grow.
What the result leaves out
- Tax. Profit is usually taxable, so what you keep is lower.
- Inflation. A gain over 10 years buys less than the same dollars would today.
- The path in between. Annualized return is a smoothed rate. The real value may have risen and fallen sharply on the way.
- The future. Investments can lose value. Nothing here predicts a return.
Common mistakes
- Dividing ROI by the years. That gives the simple average, which is too high for any period over a year.
- Using revenue as the return. For a business, the return is profit.
- Leaving out costs. Fees, taxes paid on purchase, shipping and repairs all belong in the cost.
- Trusting a yearly rate from a few weeks. A short lucky run turns into an impossible annualized figure.
- Comparing ROIs over different periods. Annualize both first.
Questions people ask
What is the formula for ROI?
ROI = net profit ÷ total cost × 100. Net profit is what you got back minus everything you put in, including fees. Put in $10,000, get back $15,000, and the ROI is 50%.
What is the difference between ROI and annualized return?
ROI is the total gain over the whole period. Annualized return is the steady yearly rate that would produce that gain. A 50% ROI over 10 years is an annualized return of about 4.14%.
Is annualized return the same as CAGR?
Yes, when there is one amount in at the start and one amount out at the end. CAGR stands for compound annual growth rate, and this calculator uses that formula.
Why is annualized return lower than ROI divided by the years?
Because of compounding. Each year's gain earns its own return in later years, so a smaller yearly rate reaches the same total. 50% over 10 years is 5% a year by division, but only about 4.14% a year compounded.
What is a good ROI?
There is no single number. It depends on how long the money was tied up, how much risk you took and what else you could have done with it. Annualize the return first, then compare it with other options over the same period.
Can ROI be negative?
Yes. A negative ROI means you got back less than you put in. If you got nothing back, the ROI is minus 100%.
How do I calculate ROI on marketing spend?
Enter the campaign cost as the amount invested and the profit on the sales it produced as the amount returned. Use profit, not revenue. A $2,000 campaign that brings in $3,000 of profit has an ROI of 50%.
How do I annualize a return earned in less than a year?
Use the same formula with a part year, such as 0.5 for six months. A 10% gain in six months annualizes to about 21%. That assumes you could repeat the result, which is often not true.
Does ROI include tax and inflation?
Not in this calculator. The figures are before tax and are not adjusted for inflation, so your real return is lower.
Related calculators
Sources
ROI and the compound annual growth rate are standard arithmetic, not official rules. No tax rates or limits are used on this page.
Figures last checked against these sources on October 10, 2026. This page gives general information and estimates, not tax, legal or financial advice.