ROI Calculator

About ROI Calculator

How Is ROI Calculated?

The basic ROI formula divides the net gain by the original cost and multiplies by 100 to get a percentage. The annualised version adjusts for holding period so investments held for different lengths of time can be compared fairly.

Metric	Formula	Example
Total ROI	(Final Value - Cost) / Cost x 100	(15,000 - 10,000) / 10,000 x 100 = 50%
Net profit / loss	Final Value - Cost	15,000 - 10,000 = 5,000 profit
Annualised ROI	((1 + ROI/100)^(1/years) - 1) x 100	((1.5)^(1/3) - 1) x 100 = 14.47% per year

Worked example: Suppose you buy shares for 10,000 and sell them three years later for 15,000. The net gain is 5,000. Total ROI = (15,000 - 10,000) / 10,000 x 100 = 50%. To annualise: ((1 + 0.50)^(1/3) - 1) x 100 = 14.47% per year. That 14.47% is the equivalent constant annual growth rate that would turn 10,000 into 15,000 over three years. This is mathematically identical to the CAGR calculation - the two terms are interchangeable.

Why Annualised ROI Matters

Total ROI ignores how long the money was tied up. A 50% return over 1 year is vastly better than the same 50% over 10 years. Annualising puts every investment on the same yearly time scale, making comparisons fair.

Investment	Cost	Final Value	Total ROI	Years	Annualised ROI
Stock A	10,000	15,000	50%	3	14.47%
Stock B	10,000	14,000	40%	2	18.32%
Property	200,000	320,000	60%	10	4.81%
Savings account	10,000	10,500	5%	1	5.00%

Stock B has a lower total ROI than Stock A, but a higher annualised return because it achieved 40% in 2 years vs 50% in 3. Annualised ROI is the fair comparison. This matters especially when deciding where to allocate the next chunk of capital - the investment with the highest annualised return uses money most efficiently.

ROI Benchmarks by Asset Class

Knowing typical returns helps set realistic expectations. The table below uses long-run averages from Aswath Damodaran's NYU Stern dataset and government statistics offices.

Investment Type	Historical Average Annual Return	Notes
S&P 500 (US stocks)	~10.4% nominal, ~7.2% inflation-adjusted	Long-run average since 1928 per NYU Stern. The S&P 500 returned 17.9% in 2025, following 25.0% in 2024.
FTSE 100 (UK stocks)	~7.8% total return	Annualised total return (price + dividends) since 1984. The current FTSE 100 dividend yield sits around 3.5%, meaning roughly half the total return comes from dividends reinvested.
UK property	~1.3% capital gains (Jan 2026)	ONS House Price Index 12-month growth as of January 2026. Long-term averages are higher at 5-7% including rental yield, but 2025-26 growth has been slow.
Government bonds (UK gilts)	~3-5%	Lower risk, lower return. 10-year gilt yields were around 4.5% in early 2026.
Savings accounts (UK)	Up to 4.75% easy-access (April 2026)	Top easy-access rates per Moneyfacts. Challenger banks lead; high-street averages are 2-3.5%.
Savings accounts (US)	Up to 4.21% APY (April 2026)	Top high-yield savings per Bankrate. The national average is just 0.39% FDIC-reported.
Cryptocurrency (Bitcoin)	Highly volatile	Past 10-year CAGR is very high but with drawdowns exceeding 70%. Not comparable to traditional assets on a risk-adjusted basis.

These benchmarks are useful as a sanity check. If an investment promises a "guaranteed" 20% annual return with no risk, that should raise immediate red flags - the S&P 500 has only averaged around 10% annually over nearly a century, and it comes with meaningful volatility.

What Is a Good ROI?

There is no single answer because "good" depends on the risk taken, the holding period, and what alternatives were available. A few rules of thumb:

• Beating inflation is the absolute minimum. With UK CPI running around 2.6% in early 2026, any return below that means losing purchasing power in real terms.
• Beating a savings account (roughly 4-5% as of April 2026) is the next bar. If a risky investment can't clear the return on a risk-free deposit, it's hard to justify the risk.
• Beating the stock market (roughly 10% nominal long-run) means outperforming a passive index fund. Professional fund managers fail to do this consistently - the S&P Dow Jones SPIVA scorecard consistently shows over 85% of active large-cap US funds underperform the S&P 500 over 15-year periods.

Context matters too. A 15% annual return from a rental property might sound strong, but if it required 200 hours of landlord work per year, the effective hourly rate might be poor compared to simply investing in an index fund with zero effort. Risk also plays a role - a 12% return from a volatile small-cap stock is not directly comparable to a 10% return from a diversified index fund, because the volatility means the outcome is far less predictable. When two investments offer similar returns, the less volatile one is generally the better choice.

ROI vs Other Investment Metrics

ROI is the simplest return metric, but it has limitations. Here is how it compares to more specialised measures:

Metric	What It Measures	Best For
ROI (this tool)	Total or annualised return as a percentage of cost	Quick comparison of investments of different sizes
Payback period	How quickly you recover the initial cost	Assessing risk - faster payback means less exposure. Use the payback period calculator for this.
NPV (Net Present Value)	Present value of all future cash flows minus cost	Comparing projects with different cash flow timings
IRR (Internal Rate of Return)	Annualised return rate where NPV equals zero	Comparing investments with varying cash flows over time
CAGR	Smoothed annual growth rate	Same as annualised ROI - different name for the same formula

For business decisions, ROI works well for one-off investments (buy equipment, sell it later). For ongoing cash flows like rental income or a subscription business, IRR or NPV gives a more complete picture because they account for when cash flows arrive.

Nominal vs Real ROI

Nominal ROI is the raw percentage gain. Real ROI subtracts inflation to show the actual increase in purchasing power. The approximate formula is: Real ROI = Nominal ROI - Inflation Rate. For a more precise result, use the Fisher equation: Real Return = ((1 + Nominal) / (1 + Inflation)) - 1.

For example, if an investment returns 8% nominal in a year when inflation is 3%, the real return is roughly 4.85% using the Fisher equation, or approximately 5% using the simple subtraction. Over long holding periods, this difference compounds significantly. A 7% nominal return over 20 years turns 10,000 into 38,697. But at 3% annual inflation, the real return is roughly 4%, turning 10,000 into just 21,911 in today's purchasing power. That gap of nearly 17,000 is entirely eaten by inflation. This is why long-term investors should always think in real terms rather than headline nominal figures.

Common ROI Mistakes

Mistake	Why It Is Wrong	Correct Approach
Comparing total ROI across different time periods	100% over 10 years is not comparable to 50% over 1 year	Always compare annualised ROI
Ignoring costs (fees, taxes, maintenance)	Understates the true investment cost	Include all costs in the "initial cost" figure
Not adjusting for inflation	A 5% return with 3% inflation is only 2% real return	Subtract inflation for real ROI, or compare nominal to nominal
Survivorship bias in benchmarks	Average "stock market return" only includes companies that survived	Use broad index returns (S&P 500, FTSE All-Share) as benchmarks
Cherry-picking start and end dates	Starting from a market low and ending at a high inflates the return	Use rolling averages or compare full market cycles
Forgetting opportunity cost	A 6% return sounds fine until you realise the alternative was 10%	Compare against a realistic benchmark, not zero

Using ROI for Business Decisions

ROI is not just for stock market investments. Businesses use it to evaluate marketing campaigns, equipment purchases, employee training, and software subscriptions. The formula is the same: measure what you spent, measure what you got back, and divide.

Marketing example: A company spends 5,000 on a paid search campaign that generates 18,000 in attributable revenue. With a 40% gross margin, that revenue converts to 7,200 in gross profit. ROI = (7,200 - 5,000) / 5,000 x 100 = 44%. This is useful, but bear in mind that attribution is rarely perfect - some of that revenue might have come in organically without the ads. Multi-touch attribution models can help, but there is always some uncertainty.

Equipment example: A manufacturing machine costs 50,000 and generates 15,000 per year in additional output. Simple annual ROI = 15,000 / 50,000 x 100 = 30%, with a payback period of about 3.3 years. But this overlooks maintenance, training, installation downtime, and the machine's eventual resale value. Including 3,000 per year in maintenance drops the net annual gain to 12,000, lowering the effective ROI to 24%. Always use fully-loaded costs for an accurate picture. The profit margin calculator can help model the unit economics of production changes.

For projecting future growth with regular deposits, the compound interest calculator models compounding over time with monthly contributions. For comparing the total cost of business investments over their full lifecycle, the break-even calculator shows when revenue covers costs.

Sources

• NYU Stern (Damodaran) - Historical Returns on Stocks, Bonds and Bills
• GOV.UK - UK House Price Index, January 2026
• Bankrate - Best High-Yield Savings Accounts, April 2026
• Moneyfacts - UK Easy Access Savings Rates
• IG - Average Returns of the FTSE 100