What is ROI and how is it calculated?
CalcuMetro editorial team · Published · 1 min read
ROI (return on investment) shows how much you gained or lost relative to what you invested. It's a simple metric for comparing investments or projects, as long as you keep its limitations in mind.
The ROI formula
ROI = (final value − investment − costs) / (investment + costs) × 100
Including costs such as fees or maintenance in the amount invested avoids overstating the return.
Worked example
You invest €1,000 and pay €50 in fees; at the end you get €1,300.
- Total invested: 1,000 + 50 = €1,050.
- Net profit: 1,300 − 1,050 = €250.
- ROI: 250 / 1,050 × 100 ≈ 23.81%.
ROI ignores time
A 100% ROI isn't equally good over 2 years and over 10. To compare investments of different lengths, use the annualized return:
Annualized return = ((final value / total invested)^(1/years) − 1) × 100
If €1,000 becomes €2,000, the ROI is 100% in both cases, but the annualized return is 41.42% over 2 years and 7.18% over 10 years.
Limitations of ROI
- It doesn't measure the risk taken to achieve the result.
- It excludes taxes on the gain, which depend on each country.
- It's a nominal return: it doesn't account for inflation over the period.
Educational content with illustrative examples; not financial, tax or legal advice.