diff --git "a/0f111bd6-5cdb-49c3-a4b8-47750f2c3e4c.json" "b/0f111bd6-5cdb-49c3-a4b8-47750f2c3e4c.json" new file mode 100644--- /dev/null +++ "b/0f111bd6-5cdb-49c3-a4b8-47750f2c3e4c.json" @@ -0,0 +1,40 @@ +{ + "interaction_id": "0f111bd6-5cdb-49c3-a4b8-47750f2c3e4c", + "search_results": [ + { + "page_name": "Return on Investment (ROI): How to Calculate It and What It Means", + "page_url": "https://www.investopedia.com/terms/r/returnoninvestment.asp", + "page_snippet": "Return on investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several investments.Essentially, ROI can be used as a rudimentary gauge of an investment\u2019s profitability. This could be the ROI on a stock investment, the ROI a company expects on expanding a factory, or the ROI generated in a real estate transaction. The calculation itself is not too complicated, and it is relatively easy to interpret for its wide range of applications. If an investment\u2019s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options. Likewise, investments that take longer to pay off will generally require a higher ROI in order to be attractive to investors. Historically, the average ROI for the S&P 500 has been about 10% per year. Within that, though, there can be considerable variation depending on the industry. During 2020, for example, many technology companies generated annual returns well above this 10% threshold. Since the total ROI was 40%, to obtain the average annual ROI, Jo could divide 40% by 3 to yield 13.33% annualized. With this adjustment, it appears that although Jo\u2019s second investment earned more profit, the first investment was actually the more efficient choice. ROI can be used in conjunction with the rate of return (RoR), which takes into account a project\u2019s time frame. To calculate the return on this investment, divide the net profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%. With this information, one could compare the investment in Slice Pizza with any other projects. Suppose Jo also invested $2,000 in Big-Sale Stores Inc. in 2014 and sold the shares for a total of $2,800 in 2017. The ROI on Jo\u2019s holdings in Big-Sale would be $800/$2,000, or 40%.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\nReturn on Investment (ROI): How to Calculate It and What It Means\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n\n
\n\n
\n
\n\n
\n
\n\n\n
\n\nTrade\n
\n
    \n
  • \n
    \n
    \n\n\n\n\n
    \n
    \n
    \n\n\n\nPlease fill out this field.\n\n\n
    \n
    \n
    • \n
\n
\n
\n
\n
\n
\n
\n
\n
Table of Contents\n
\n
Table of Contents\n\n\n
\n
  • What Is Return on Investment (ROI)?
    • \n
  • How to Calculate ROI
    • \n
  • Why Is ROI a Useful Measurement?
    • \n
  • Limitations
    • \n
  • Developments
    • \n
  • ROI FAQs
    • \n
  • The Bottom Line
\n
  • Corporate Finance
    • \n
  • Financial Ratios
\n

Return on Investment (ROI): How to Calculate It and What It Means

\n

\n
\n
\nBy\n
Jason Fernando\n
\n
\n
\n\n\n
\nFull Bio\n
\n
    \n
  • \n \n\n\n
    • \n
\n
\nJason Fernando is a professional investor and writer who enjoys tackling and communicating complex business and financial problems.\n
\n
\n
\nLearn about our \neditorial policies\n
\n
\n
\n
Updated December 22, 2023
\n
\n\n\nReviewed by\nJulius Mansa\n
\n
\n\n\nFact checked by\n
Suzanne Kvilhaug\n
\n
\n
\n\n\n
\n
\n\n\nFact checked by\nSuzanne Kvilhaug\n
\nFull Bio
\nSuzanne is a content marketer, writer, and fact-checker.\u00a0She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.\n
\n
\n
\nLearn about our \neditorial policies\n
\n
\n
\n
\n
\n
\n

What Is Return on Investment (ROI)?

\n

Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment\u2019s cost.\n

\n
\n

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.\n

\n
\n

Key Takeaways

\n
  • Return on Investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed.
  • ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay.
  • ROI can be used to make apples-to-apples comparisons and rank investments in different projects or assets.
  • ROI does not take into account the holding period or passage of time, and so it can miss opportunity costs of investing elsewhere.
  • Whether or not something delivers a good ROI should be compared relative to other available opportunities.
\n
\n
\n\n\n
\n

Investopedia / Lara Antal

\n
\n

How to Calculate Return on Investment (ROI)

\n

The return on investment (ROI) formula is as follows:\n

\n
\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nROI\n\n\n=\n\n\n\n\nCurrent Value of Investment\n\n\n\u2212\n\n\nCost of Investment\n\n\n\nCost of Investment\n\n\n\n\n\n\n\n\n\\begin{aligned} &\\text{ROI} = \\dfrac{\\text{Current Value of Investment}-\\text{Cost of Investment}}{\\text{Cost of Investment}}\\\\ \\end{aligned}\n\n\n\u200bROI=Cost of InvestmentCurrent Value of Investment\u2212Cost of Investment\u200b\u200b \n

\n
\n

"Current Value of Investment\u201d refers to the proceeds obtained from the sale of the investment of interest. Because ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.\n

\n
\n

Why Is ROI a Useful Measurement?

\n

ROI is a popular metric because of its versatility and simplicity. Essentially, ROI can be used as a rudimentary gauge of an investment\u2019s profitability. This could be the ROI on a stock investment, the ROI a company expects on expanding a factory, or the ROI generated in a real estate transaction.\n

\n
\n

The calculation itself is not too complicated, and it is relatively easy to interpret for its wide range of applications. If an investment\u2019s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options. Likewise, investors should avoid negative ROIs, which imply a net loss.\n

\n
\n

For example, suppose Jo invested $1,000 in Slice Pizza Corp. in 2017 and sold the shares for a total of $1,200 one year later. To calculate the return on this investment, divide the net profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%.\n

\n
\n

With this information, one could compare the investment in Slice Pizza with any other projects. Suppose Jo also invested $2,000 in Big-Sale Stores Inc. in 2014 and sold the shares for a total of $2,800 in 2017. The ROI on Jo\u2019s holdings in Big-Sale would be $800/$2,000, or 40%.\n

\n
\n

What Are the Limitations of ROI?

\n

Examples like Jo's (above) reveal some limitations of using ROI, particularly when comparing investments. While the ROI of Jo's second investment was twice that of the first investment, the time between Jo\u2019s purchase and the sale was one year for the first investment but three years for the second.\n

\n
\n

Jo could adjust the ROI of the multi-year investment accordingly. Since the total ROI was 40%, to obtain the average annual ROI, Jo could divide 40% by 3 to yield 13.33% annualized. With this adjustment, it appears that although Jo\u2019s second investment earned more profit, the first investment was actually the more efficient choice.\n

\n
\n

ROI can be used in conjunction with the rate of return (RoR), which takes into account a project\u2019s time frame. One may also use net present value (NPV), which accounts for differences in the value of money over time due to inflation. The application of NPV when calculating the RoR is often called the real rate of return.\n

\n
\n

What Are the Wider Applications of ROI?

\n

Recently, certain investors and businesses have taken an interest in the development of new forms of ROIs, called social return on investment (SROI). SROI was initially developed in the late 1990s and takes into account broader impacts of projects using extra-financial value (i.e., social and environmental metrics not currently reflected in conventional financial accounts).\n

\n
\n

SROI helps understand the value proposition of certain environmental, social, and governance (ESG) criteria used in socially responsible investing (SRI) practices. For instance, a company may decide to recycle water in its factories and replace its lighting with all LED bulbs. These undertakings have an immediate cost that may negatively impact traditional ROI\u2014however, the net benefit to society and the environment could lead to a positive SROI.\n

\n
\n

There are several other new variations of ROIs that have been developed for particular purposes. Social media statistics ROI pinpoints the effectiveness of social media campaigns\u2014for example how many clicks or likes are generated for a unit of effort. Similarly, marketing statistics ROI tries to identify the return attributable to advertising or marketing campaigns.\n

\n
\n

\n

So-called learning ROI relates to the amount of information learned and retained as a return on education or skills training. As the world progresses and the economy changes, several other niche forms of ROI are sure to be developed in the future.

\n

What Is ROI in Simple Terms?

\n

Basically, return on investment (ROI) tells you how much money you've made (or lost) on an investment or project after accounting for its cost.

\n
\n
\n

How Do You Calculate Return on Investment (ROI)?

\n

Return on investment (ROI) is calculated by dividing the profit earned on an investment by the cost of that investment. For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage. Although ROI is a quick and easy way to estimate the success of an investment, it has some serious limitations. ROI fails to reflect the time value of money, for instance, and it can be difficult to meaningfully compare ROIs because some investments will take longer to generate a profit than others. For this reason, professional investors tend to use other metrics, such as net present value (NPV) or the internal rate of return (IRR).

\n
\n
\n

What Is a Good ROI?

\n

What qualifies as a \u201cgood\u201d ROI will depend on factors such as the risk tolerance of the investor and the time required for the investment to generate a return. All else being equal, investors who are more risk-averse will likely accept lower ROIs in exchange for taking less risk. Likewise, investments that take longer to pay off will generally require a higher ROI in order to be attractive to investors.

\n
\n
\n

What Industries Have the Highest ROI?

\n

Historically, the average ROI for the S&P 500 has been about 10% per year. Within that, though, there can be considerable variation depending on the industry. During 2020, for example, many technology companies generated annual returns well above this 10% threshold. Meanwhile, companies in other industries, such as energy companies and utilities, generated much lower ROIs and in some cases faced losses year-over-year. Over time, it is normal for the average ROI of an industry to shift due to factors such as increased competition, technological changes, and shifts in consumer preferences.

\n
\n
\n

The Bottom Line

\n

Return on investment is a metric that investors often use to evaluate the profitability of an investment or to compare returns across a number of investments. It is expressed as a percentage. ROI is limited in that it doesn't take into account the time frame, opportunity costs, or the effect of inflation on investment returns, which are all important factors to consider.
\n

\n
\n
\n
\n
Article Sources
\n
\n
\n
\n
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.
\n
    \n

  1. World Health Organization. "Investment for Health and Well-Being: A Review of the Social Return on Investment From Public Health Policies," PDF Download. Pages 2-4.

    2. \n

  2. DQYDJ. "S&P 500 Historical Return Calculator."

    3. \n

  3. Fortune. "The Best Stocks of 2020 Have Made Pandemic Investors Even Richer."

    4. \n
\n
\n
\n
Open a New Bank Account
\n
\n
×
\n
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
\n
Sponsor
\n
Name
\n
Description
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
Take the Next Step to Invest
\n
\n
×
\n
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n
Related Terms
\n
Internal Rate of Return (IRR): Formula and Examples\n
The internal rate of return (IRR) is a metric used in capital budgeting to estimate the return of potential investments. Here is the formula for calculating it.
\nmore
\n
Net Present Value (NPV): What It Means and Steps to Calculate It\n
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
\nmore
\n
Hurdle Rate: What It Is and How Businesses and Investors Use It\n
A hurdle rate is the minimum rate of return a project or investment must achieve to be approved by an investor or manager.
\nmore
\n
Return on Equity (ROE) Calculation and What It Means\n
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity.
\nmore
\n
Compound Annual Growth Rate (CAGR) Formula and Calculation\n
The compound annual growth rate (CAGR) measures an investment's annual growth rate over a period of time, assuming profits are reinvested at the end of each year.
\nmore
\n
Cash Conversion Cycle (CCC): What Is It, and How Is It Calculated?\n
Cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert resources into cash flows.
\nmore
\n
\n
\n\n
\n
\n
\n\n\n
\n
    \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
\n
\n\"TRUSTe\"
\n
\n
  • #
    • \n
  • A
    • \n
  • B
    • \n
  • C
    • \n
  • D
    • \n
  • E
    • \n
  • F
    • \n
  • G
    • \n
  • H
    • \n
  • I
    • \n
  • J
    • \n
  • K
    • \n
  • L
    • \n
  • M
    • \n
  • N
    • \n
  • O
    • \n
  • P
    • \n
  • Q
    • \n
  • R
    • \n
  • S
    • \n
  • T
    • \n
  • U
    • \n
  • V
    • \n
  • W
    • \n
  • X
    • \n
  • Y
    • \n
  • Z
\n
\n\n\n\n
\n
\nInvestopedia is part of the Dotdash Meredith publishing family.\n
\n
\nPlease review our updated Terms of Service.\n
\n
\n
\n
\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "Return on Investment (ROI)", + "page_url": "https://corporatefinanceinstitute.com/resources/accounting/what-is-return-on-investment-roi/", + "page_snippet": "Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or compare efficiency of different investments.However, let us continue the example by assuming Investor A incurred costs of $50 and Investor B incurred costs of $40,000 to attain the respective $200 and $50,000 profits. These additional facts illustrate that the dollar value of return bears no significance without considering the cost of the investment. In this example, the return on investment for Investor A is ($200-$50)/($50) = 300% while the ROI for Investor B is ($50,000-$40,000)/($40,000) = 25%. Therefore, Investor A actually holds the better investment. Return on Investment is a very popular financial metric due to the fact that it is a simple formula that can be used to assess the profitability of an investment. ROI is easy to calculate and can be applied to all kinds of investments. Return on investment helps investors to determine which investment opportunities are most preferable or attractive. For example, let us consider Investment A and Investment B, each with a cost of $100. Return on Investment, one of the most used profitability ratios, is a simple formula that measures the gain or loss from an investment relative to the cost of the investment. ROI is expressed as a percentage and is commonly used in making financial decisions, comparing companies\u2019 profitability, and comparing the efficiency of different investments. ROI is expressed as a percentage and is commonly used in making financial decisions, comparing companies\u2019 profitability, and comparing the efficiency of different investments. Watch this short video to quickly understand the main concepts covered in this guide, including the formula for calculating ROI and the reasons why ROI is a useful metric to look at.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nReturn on Investment - Overview, Calculate, Formula\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\n
\n
\n
\n
\n
\n\nCorporate Finance Institute \n
\n\n
\n
\n
\n
\n\n
\n
\n
\n
\n
\n\n\n\n
\n
\n
\n
\n
\n
\n\nHome › Resources › Accounting › Return on Investment (ROI)
\n
\n
\n
\n
\n
\n
\n
\n
\n

Return on Investment (ROI)

\n

The benefit from investing in a certain resource

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.\n

\nStart Free\n

\n
\n
\n
\n
\n
\nWritten by\n\nCFI Team\n\n
\n
\n
\n
\n

What is Return on Investment (ROI)?

\n

Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or to compare the relative efficiency of different investments. ROI measures the return of an investment relative to the cost of the investment.

\n

The Return on Investment (ROI) formula:

\n

\"Return

\n

Where “Gain from Investment” refers to the amount of profit generated from the sale of the investment, or the increase in value of the investment regardless of whether it is sold or not.

\n

\"Return

\n

Breaking down Return on Investment

\n

Return on Investment is a very popular financial metric due to the fact that it is a simple formula that can be used to assess the profitability of an investment. ROI is easy to calculate and can be applied to all kinds of investments.

\n

Return on investment helps investors to determine which investment opportunities are most preferable or attractive.

\n

For example, let us consider Investment A and Investment B, each with a cost of $100. These two investments are risk-free (cash flows are guaranteed) and the cash flows are $500 for Investment A and $400 for Investment B next year.

\n

Calculating the Return on Investment for both Investments A and B would give us an indication of which investment is better. In this case, the ROI for Investment A is ($500-$100)/($100) = 400%, and the ROI for Investment B is ($400-$100)/($100) = 300%. In this situation, Investment A would be a more favorable investment.

\n

Clearing Up Confusion: Return on Investment

\n

1. Due to the fact that Return on Investment is expressed as a percentage (%) and not as a dollar amount, it can clear up confusion that may exist in merely looking at dollar value returns.

\n

For example, Investor A made $200 investing in options and Investor B made $50,000 investing in new condominiums. If only this information is given, you may assume that Investor B holds the better investment.

\n

However, let us continue the example by assuming Investor A incurred costs of $50 and Investor B incurred costs of $40,000 to attain the respective $200 and $50,000 profits. These additional facts illustrate that the dollar value of return bears no significance without considering the cost of the investment. In this example, the return on investment for Investor A is ($200-$50)/($50) = 300% while the ROI for Investor B is ($50,000-$40,000)/($40,000) = 25%. Therefore, Investor A actually holds the better investment.

\n

2. The time horizon must also be considered when you want to compare the ROI of two investments.

\n

For example, assume that Investment A has an ROI of 20% over a three-year time span while Investment B has an ROI of 10% over a one-year time span. If you were to compare these two investments, you must make sure the time horizon is the same. The multi-year investment must be adjusted to the same time horizon as the one-year investment. To arrive at an average annual return, follow the steps below.

\n

Changing a multi-year ROI into an annualized year formula: 

\n

\"Multi-year

\n

Where:

\n

x = Annualized return

\n

T = Time horizon

\n

For Investment A with a return of 20% over a three-year time span, the annualized return is:

\n

x = Annualized

\n

T = 3 years

\n

reTherefore, (1+x)3 – 1 = 20%

\n

Solving for x gives us an annualized ROI of 6.2659%. This is less than Investment B’s annual return of 10%.

\n

To check if the annualized return is correct, assume the initial cost of an investment is $20. After 3 years, $20 x 1.062659 x 1.062659 x 1.062659 = $24

\n

ROI = (24 – 20) / (20) = 0.2 = 20%.

\n

Common Mistakes in Calculating ROI

\n

ROI can be used for any type of investment. The only variation in investments that must be considered is how costs and profits are accounted for. Below are two examples of how return on investment can be commonly miscalculated.

\n
    \n
  • Stocks: Investors commonly fail to incorporate transaction costs and dividend payouts into the ROI of stocks. Transaction costs are a cost to your investment, while dividend payouts are a gain to your investment. The investor must take into account both the transaction cost and dividend gain to get an accurate return calculation. If this is not done, then the ROI would be misrepresented.
    • \n
\n
    \n
  • Real Estate: Investors commonly fail to incorporate rental income, taxes, insurance, and upkeep in the return on investment calculation of real estate. Rental income is a gain to your investment, while taxes, insurance, and upkeep are costs to your investment.
    • \n
\n

It is important to account for all costs and gains of your investment throughout its entire lifespan, instead of merely taking the ending investment value and dividing it by initial cost.

\n

ROI Calculator in Excel

\n

Download CFI’s free ROI Calculator in Excel to perform your own analysis.  The calculator uses the examples explained above and is designed so that you can easily input your own numbers and see what the output is under different scenarios.

\n

The calculator covers four different methods of calculating ROI: net income, capital gain, total return, and annualized return.

\n

\"ROI

\n

The best way to learn the difference between each of the four approaches is to input different numbers and scenarios and see what happens to the results.

\n

Download the Free Template

\n

Enter your name and email in the form below and download the free template now!

\n
\n
\n
\n

Return on Investment Calculator Template

\n

Download the free Excel template now to advance your finance knowledge!

\n
\n
  • \n\n
\n
\n

This request for consent is made by Corporate Finance Institute, 801-750 W Pender Street, Vancouver, British Columbia, Canada V6C 2T8. www.corporatefinanceinstitute.com. learning@corporatefinanceinstitute.com. Please click here to view CFI`s privacy policy.\">\n
\n\n\n\n\n\n\n\n\n
\n

\n
\n\n\n
\n

The Importance of ROI

\n

Return on Investment, one of the most used profitability ratios, is a simple formula that measures the gain or loss from an investment relative to the cost of the investment.

\n

ROI is expressed as a percentage and is commonly used in making financial decisions, comparing companies’ profitability, and comparing the efficiency of different investments.

\n

Video Explanation of Return on Investment (ROI)

\n

Watch this short video to quickly understand the main concepts covered in this guide, including the formula for calculating ROI and the reasons why ROI is a useful metric to look at.

\n

Other Resources

\n

CFI is a global provider of financial modeling courses and financial analyst certification. To learn more about evaluating investments, see the following additional CFI resources:

\n\n
\n
\n
\n
\n
\n

\nFree Accounting Courses

\n

Learn accounting fundamentals and how to read financial statements with CFI’s free online accounting classes.
\nThese courses will give the confidence you need to perform world-class financial analyst work. Start now!

\n

 

\n
\n\n\"Accounting\n\n
\n

Building confidence in your accounting skills is easy with CFI courses! Enroll now for FREE to start advancing your career!

\n
\n
\n
\n
\n
\n
\n
\n
\n\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
Get Certified for Financial Modeling (FMVA)\u00ae
\n
Gain in-demand industry knowledge and hands-on practice that will help you stand out from the competition and become a world-class financial analyst.
\n
\nLearn More\n
\n
\n
\n
\n
\n\n\n
\n
\n\n
\n\n
\n
\n
\n\nCorporate Finance Institute \n
\n
\n\n\n\n\n\n
\n\n\n\n\n\n
\n
\n
\n
\n
\n
\n\n\n
\n
\n
\n
\n
\n
\nBack to Website\n
\n
\n0 search results for ‘’\n
\n
\n
\n
\n
\n\nPeople also search for:\n\n\nexcel \n\nFree \n\nfree courses \n\naccounting \n\nESG \n\nBalance sheet \n\nwacc \n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n\n
\n
\n
\n
\n
\n
\nExplore Our Certifications
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n
\nFinancial Modeling & Valuation Analyst (FMVA)\u00ae
\n\n
\n\n
\n
\n
\n
\n\n
\nCommercial Banking & Credit Analyst (CBCA)\u00ae
\n\n
\n\n
\n
\n
\n
\n\n
\nCapital Markets & Securities Analyst (CMSA)\u00ae
\n\n
\n\n
\n
\n
\n
\n\n
\nCertified Business Intelligence & Data Analyst (BIDA)\u00ae
\n\n
\n\n
\n
\n
\n
\n\n
\nFinancial Planning & Wealth Management (FPWM)\u2122
\n\n
\n\n
\n
\n
\n
\n\n
\nFinTech Industry Professional (FTIP)\u2122
\n\n
\n\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\nResources
\n
\n
\n\n
\n
\n\nSee All Resources\nSee All\n\n
\n
\n
\n
\n
\nPopular Courses
\n
\n
\n\n
\n
\n\nSee All Courses\nSee All\n\n
\n
\n
\n
\n
\n
\n
\n
\nRecent Searches
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\nSuggestions
\n
\n
\n
\n\nFree Courses \n\nExcel Courses \n\nFinancial Modeling & Valuation Analyst (FMVA)\u00ae \n
\n
\n
\n
\n
\n
\n
\n
\n\n
\n
\n
\n
\n
\n\n
\n
\n
\n

Create a free account to unlock this Template

\n
\n

Access and download collection of free Templates to help power your productivity and performance.

\n
\n
\nCreate a Free Account\n
\n
\n

Already have an account? Log in

\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n
\n
\n
\n

Supercharge your skills with Premium Templates

\n
\n

Take your learning and productivity to the next level with our Premium Templates.

\n

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance\u2014as well as CFI's full course catalog and accredited Certification Programs.

\n
\n
\nDiscover Paid Memberships\n
\n
\n

Already have a Self-Study or Full-Immersion membership? Log in

\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n
\n
\n
\n

Access Exclusive Templates

\n
\n

Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.

\n
\n
\nDiscover Full-Immersion Membership\n
\n
\n

Already have a Full-Immersion membership? Log in

\n
\n
\n
\n
\n
\n
\n
\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n
\n\n", + "page_last_modified": " Wed, 13 Mar 2024 06:11:16 GMT" + }, + { + "page_name": "Return on Investment (ROI): How to Calculate It and What It Means", + "page_url": "https://www.investopedia.com/terms/r/returnoninvestment.asp", + "page_snippet": "Return on investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several investments.Essentially, ROI can be used as a rudimentary gauge of an investment\u2019s profitability. This could be the ROI on a stock investment, the ROI a company expects on expanding a factory, or the ROI generated in a real estate transaction. The calculation itself is not too complicated, and it is relatively easy to interpret for its wide range of applications. If an investment\u2019s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options. Likewise, investments that take longer to pay off will generally require a higher ROI in order to be attractive to investors. Historically, the average ROI for the S&P 500 has been about 10% per year. Within that, though, there can be considerable variation depending on the industry. During 2020, for example, many technology companies generated annual returns well above this 10% threshold. Since the total ROI was 40%, to obtain the average annual ROI, Jo could divide 40% by 3 to yield 13.33% annualized. With this adjustment, it appears that although Jo\u2019s second investment earned more profit, the first investment was actually the more efficient choice. ROI can be used in conjunction with the rate of return (RoR), which takes into account a project\u2019s time frame. To calculate the return on this investment, divide the net profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%. With this information, one could compare the investment in Slice Pizza with any other projects. Suppose Jo also invested $2,000 in Big-Sale Stores Inc. in 2014 and sold the shares for a total of $2,800 in 2017. The ROI on Jo\u2019s holdings in Big-Sale would be $800/$2,000, or 40%.", + "page_result": "\n\n\n\n\n\n\n\n\n\n\nReturn on Investment (ROI): How to Calculate It and What It Means\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n\n
\n\n
\n
\n\n
\n
\n\n\n
\n\nTrade\n
\n
    \n
  • \n
    \n
    \n\n\n\n\n
    \n
    \n
    \n\n\n\nPlease fill out this field.\n\n\n
    \n
    \n
    • \n
\n
\n
\n
\n
\n
\n
\n
\n
Table of Contents\n
\n
Table of Contents\n\n\n
\n
  • What Is Return on Investment (ROI)?
    • \n
  • How to Calculate ROI
    • \n
  • Why Is ROI a Useful Measurement?
    • \n
  • Limitations
    • \n
  • Developments
    • \n
  • ROI FAQs
    • \n
  • The Bottom Line
\n
  • Corporate Finance
    • \n
  • Financial Ratios
\n

Return on Investment (ROI): How to Calculate It and What It Means

\n

\n
\n
\nBy\n
Jason Fernando\n
\n
\n
\n\n\n
\nFull Bio\n
\n
    \n
  • \n \n\n\n
    • \n
\n
\nJason Fernando is a professional investor and writer who enjoys tackling and communicating complex business and financial problems.\n
\n
\n
\nLearn about our \neditorial policies\n
\n
\n
\n
Updated December 22, 2023
\n
\n\n\nReviewed by\nJulius Mansa\n
\n
\n\n\nFact checked by\n
Suzanne Kvilhaug\n
\n
\n
\n\n\n
\n
\n\n\nFact checked by\nSuzanne Kvilhaug\n
\nFull Bio
\nSuzanne is a content marketer, writer, and fact-checker.\u00a0She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.\n
\n
\n
\nLearn about our \neditorial policies\n
\n
\n
\n
\n
\n
\n

What Is Return on Investment (ROI)?

\n

Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment\u2019s cost.\n

\n
\n

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.\n

\n
\n

Key Takeaways

\n
  • Return on Investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed.
  • ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay.
  • ROI can be used to make apples-to-apples comparisons and rank investments in different projects or assets.
  • ROI does not take into account the holding period or passage of time, and so it can miss opportunity costs of investing elsewhere.
  • Whether or not something delivers a good ROI should be compared relative to other available opportunities.
\n
\n
\n\n\n
\n

Investopedia / Lara Antal

\n
\n

How to Calculate Return on Investment (ROI)

\n

The return on investment (ROI) formula is as follows:\n

\n
\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nROI\n\n\n=\n\n\n\n\nCurrent Value of Investment\n\n\n\u2212\n\n\nCost of Investment\n\n\n\nCost of Investment\n\n\n\n\n\n\n\n\n\\begin{aligned} &\\text{ROI} = \\dfrac{\\text{Current Value of Investment}-\\text{Cost of Investment}}{\\text{Cost of Investment}}\\\\ \\end{aligned}\n\n\n\u200bROI=Cost of InvestmentCurrent Value of Investment\u2212Cost of Investment\u200b\u200b \n

\n
\n

"Current Value of Investment\u201d refers to the proceeds obtained from the sale of the investment of interest. Because ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.\n

\n
\n

Why Is ROI a Useful Measurement?

\n

ROI is a popular metric because of its versatility and simplicity. Essentially, ROI can be used as a rudimentary gauge of an investment\u2019s profitability. This could be the ROI on a stock investment, the ROI a company expects on expanding a factory, or the ROI generated in a real estate transaction.\n

\n
\n

The calculation itself is not too complicated, and it is relatively easy to interpret for its wide range of applications. If an investment\u2019s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options. Likewise, investors should avoid negative ROIs, which imply a net loss.\n

\n
\n

For example, suppose Jo invested $1,000 in Slice Pizza Corp. in 2017 and sold the shares for a total of $1,200 one year later. To calculate the return on this investment, divide the net profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%.\n

\n
\n

With this information, one could compare the investment in Slice Pizza with any other projects. Suppose Jo also invested $2,000 in Big-Sale Stores Inc. in 2014 and sold the shares for a total of $2,800 in 2017. The ROI on Jo\u2019s holdings in Big-Sale would be $800/$2,000, or 40%.\n

\n
\n

What Are the Limitations of ROI?

\n

Examples like Jo's (above) reveal some limitations of using ROI, particularly when comparing investments. While the ROI of Jo's second investment was twice that of the first investment, the time between Jo\u2019s purchase and the sale was one year for the first investment but three years for the second.\n

\n
\n

Jo could adjust the ROI of the multi-year investment accordingly. Since the total ROI was 40%, to obtain the average annual ROI, Jo could divide 40% by 3 to yield 13.33% annualized. With this adjustment, it appears that although Jo\u2019s second investment earned more profit, the first investment was actually the more efficient choice.\n

\n
\n

ROI can be used in conjunction with the rate of return (RoR), which takes into account a project\u2019s time frame. One may also use net present value (NPV), which accounts for differences in the value of money over time due to inflation. The application of NPV when calculating the RoR is often called the real rate of return.\n

\n
\n

What Are the Wider Applications of ROI?

\n

Recently, certain investors and businesses have taken an interest in the development of new forms of ROIs, called social return on investment (SROI). SROI was initially developed in the late 1990s and takes into account broader impacts of projects using extra-financial value (i.e., social and environmental metrics not currently reflected in conventional financial accounts).\n

\n
\n

SROI helps understand the value proposition of certain environmental, social, and governance (ESG) criteria used in socially responsible investing (SRI) practices. For instance, a company may decide to recycle water in its factories and replace its lighting with all LED bulbs. These undertakings have an immediate cost that may negatively impact traditional ROI\u2014however, the net benefit to society and the environment could lead to a positive SROI.\n

\n
\n

There are several other new variations of ROIs that have been developed for particular purposes. Social media statistics ROI pinpoints the effectiveness of social media campaigns\u2014for example how many clicks or likes are generated for a unit of effort. Similarly, marketing statistics ROI tries to identify the return attributable to advertising or marketing campaigns.\n

\n
\n

\n

So-called learning ROI relates to the amount of information learned and retained as a return on education or skills training. As the world progresses and the economy changes, several other niche forms of ROI are sure to be developed in the future.

\n

What Is ROI in Simple Terms?

\n

Basically, return on investment (ROI) tells you how much money you've made (or lost) on an investment or project after accounting for its cost.

\n
\n
\n

How Do You Calculate Return on Investment (ROI)?

\n

Return on investment (ROI) is calculated by dividing the profit earned on an investment by the cost of that investment. For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage. Although ROI is a quick and easy way to estimate the success of an investment, it has some serious limitations. ROI fails to reflect the time value of money, for instance, and it can be difficult to meaningfully compare ROIs because some investments will take longer to generate a profit than others. For this reason, professional investors tend to use other metrics, such as net present value (NPV) or the internal rate of return (IRR).

\n
\n
\n

What Is a Good ROI?

\n

What qualifies as a \u201cgood\u201d ROI will depend on factors such as the risk tolerance of the investor and the time required for the investment to generate a return. All else being equal, investors who are more risk-averse will likely accept lower ROIs in exchange for taking less risk. Likewise, investments that take longer to pay off will generally require a higher ROI in order to be attractive to investors.

\n
\n
\n

What Industries Have the Highest ROI?

\n

Historically, the average ROI for the S&P 500 has been about 10% per year. Within that, though, there can be considerable variation depending on the industry. During 2020, for example, many technology companies generated annual returns well above this 10% threshold. Meanwhile, companies in other industries, such as energy companies and utilities, generated much lower ROIs and in some cases faced losses year-over-year. Over time, it is normal for the average ROI of an industry to shift due to factors such as increased competition, technological changes, and shifts in consumer preferences.

\n
\n
\n

The Bottom Line

\n

Return on investment is a metric that investors often use to evaluate the profitability of an investment or to compare returns across a number of investments. It is expressed as a percentage. ROI is limited in that it doesn't take into account the time frame, opportunity costs, or the effect of inflation on investment returns, which are all important factors to consider.
\n

\n
\n
\n
\n
Article Sources
\n
\n
\n
\n
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.
\n
    \n

  1. World Health Organization. "Investment for Health and Well-Being: A Review of the Social Return on Investment From Public Health Policies," PDF Download. Pages 2-4.

    2. \n

  2. DQYDJ. "S&P 500 Historical Return Calculator."

    3. \n

  3. Fortune. "The Best Stocks of 2020 Have Made Pandemic Investors Even Richer."

    4. \n
\n
\n
\n
Open a New Bank Account
\n
\n
×
\n
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
\n
Sponsor
\n
Name
\n
Description
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
Take the Next Step to Invest
\n
\n
×
\n
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n\n
Related Terms
\n
Internal Rate of Return (IRR): Formula and Examples\n
The internal rate of return (IRR) is a metric used in capital budgeting to estimate the return of potential investments. Here is the formula for calculating it.
\nmore
\n
Net Present Value (NPV): What It Means and Steps to Calculate It\n
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
\nmore
\n
Hurdle Rate: What It Is and How Businesses and Investors Use It\n
A hurdle rate is the minimum rate of return a project or investment must achieve to be approved by an investor or manager.
\nmore
\n
Return on Equity (ROE) Calculation and What It Means\n
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity.
\nmore
\n
Compound Annual Growth Rate (CAGR) Formula and Calculation\n
The compound annual growth rate (CAGR) measures an investment's annual growth rate over a period of time, assuming profits are reinvested at the end of each year.
\nmore
\n
Cash Conversion Cycle (CCC): What Is It, and How Is It Calculated?\n
Cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert resources into cash flows.
\nmore
\n
\n
\n\n
\n
\n
\n\n\n
\n
    \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
  • \n \n\n\n
    • \n
\n
\n\"TRUSTe\"
\n
\n
  • #
    • \n
  • A
    • \n
  • B
    • \n
  • C
    • \n
  • D
    • \n
  • E
    • \n
  • F
    • \n
  • G
    • \n
  • H
    • \n
  • I
    • \n
  • J
    • \n
  • K
    • \n
  • L
    • \n
  • M
    • \n
  • N
    • \n
  • O
    • \n
  • P
    • \n
  • Q
    • \n
  • R
    • \n
  • S
    • \n
  • T
    • \n
  • U
    • \n
  • V
    • \n
  • W
    • \n
  • X
    • \n
  • Y
    • \n
  • Z
\n
\n\n\n\n
\n
\nInvestopedia is part of the Dotdash Meredith publishing family.\n
\n
\nPlease review our updated Terms of Service.\n
\n
\n
\n
\n\n\n\n\n\n\n\n\n\n", + "page_last_modified": "" + }, + { + "page_name": "What Is Return On Investment (ROI)? \u2013 Forbes Advisor", + "page_url": "https://www.forbes.com/advisor/investing/roi-return-on-investment/", + "page_snippet": "Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency. Let's take a look at how it's used by both individual investors and businesses. What Is ROI? When you puReturn on investment is a metric used to understand the profitability of an investment. Annualized ROI = {[1 + (Net Profit / Cost of Investment)] (1/n) \u2013 1} x 100 \u00b7 If you bought a portfolio of securities worth $35,000, and five years later your portfolio was worth $41,000, you\u2019d have earned an annualized ROI of 3.22%. The formula would look like this: ROI is closely related to measures like return on assets (ROA) and return on equity (ROE). To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula: ... Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula: ... Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. Here\u2019s how you would calculate your ROI for this investment:", + "page_result": "\n\n\t\n\t\t\n\t\t\n \t\t\n\t\t\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t What Is Return On Investment (ROI)? – Forbes Advisor\n\n\n\n\n\n\n\n\n\n\n \n \n\t\t\t\t\n\t\t\n\t\t\n\t\t\t\n\t\t\n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\t\n\t\t\n\n\n\t\t\t \t\t \n \n \t\n \n\n\t\t\n\t
\n\t\n \n\n\n \n\n\n \n\n
\n\t
\n\t\t
\n\t\t\t
\n\t\t\t\t
\n\t\t\t\t\tSelect Region\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t
    \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"US\"\n\t\t\t\t\t\t\t\tUnited States\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"UK\"\n\t\t\t\t\t\t\t\tUnited Kingdom\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"DE\"\n\t\t\t\t\t\t\t\tGermany\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"IN\"\n\t\t\t\t\t\t\t\tIndia\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"AU\"\n\t\t\t\t\t\t\t\tAustralia\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"IT\"\n\t\t\t\t\t\t\t\tItaly\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t\t
  • \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t\t\t\"CA\"\n\t\t\t\t\t\t\t\tCanada\n\t\t\t\t\t\t\t
    \n\t\t\t\t\t\t
    • \n\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t
\n\t\t
\n\t
\n\t
\n\t\t
\n\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t
\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\n\t
\t\t\t\t\n\t\t\t
\n\t\t\t
\n
\n\t
\n
\n\t
\n\t\t
\n\t\t\t \n\t\t\t \n\t\t
\n\t\t
\n\t\t\t\n\t\t\t\n\t\t
\n\t
\n
\n\n\t\n\n\n\n \n \n \n \n \n\n
\n
\n \n \n \n \n
\n 		\n

You might be using an unsupported or outdated browser. To get the best possible experience please use the latest version of Chrome, Firefox, Safari, or Microsoft Edge to view this website.

\n 		\n \n
\n\n\n
\n
\n
\n
\n
\n
\n
\n
\n \n
\n\t \n\tAdvertiser Disclosure\n\t
\n

Return On Investment (ROI)

\n
\"Emily
\"Emily
Emily Guy BirkenContributor
Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.
\"See
Emily Guy Birken
\"Emily
Emily Guy BirkenContributor
Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.
\"See
Contributor
\"Benjamin
Benjamin Curry
Benjamin Curryeditor
Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
\"See

    Fact Checked

    Benjamin Curry
    Benjamin Curry
    Benjamin Curryeditor
    Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
    \"See
      editor

      Fact Checked

      Updated: Sep 28, 2022, 1:01am

      \n
      \n Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.\n
      \n
      \n \n \n \n
      \n \"Return\n Getty\n
      \n
      \n
      \n

      Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency. Let’s take a look at how it’s used by both individual investors and businesses.

      \n

      What Is ROI?

      \n

      When you put money into an investment or a business endeavor, ROI helps you understand how much profit or loss your investment has earned.

      \n

      Return on investment is a simple ratio that divides the net profit (or loss) from an investment by its cost. Because it is expressed as a percentage, you can compare the effectiveness or profitability of different investment choices.

      \n

      Read More: Check out our ROI calculator

      \n

      ROI is closely related to measures like return on assets (ROA) and return on equity (ROE).

      \n

      How to Calculate ROI

      \n

      To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula:

      \n

      ROI = (Net Profit / Cost of Investment) x 100

      \n

      ROI = (Present Value – Cost of Investment / Cost of Investment) x 100

      \n

      Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. Here\u2019s how you would calculate your ROI for this investment:

      \n

      ROI = ($5,500 – $5,000 / $5,000) x 100

      \n

      Your return on investment in company XYZ would be 10%. This simple example leaves out capital gains taxes or any fees involved in buying or selling the shares, but a more realistic calculation would factor those into the cost of the investment.

      \n

      The percentage figure delivered by the calculation is ROI\u2019s superpower. Instead of a specific dollar amount, you can take this percentage and compare it to the ROI percentage of other investments across different asset classes or currencies to determine which gives the highest yield.

      \n\n
      \n
      \n
      FEATURED PARTNER OFFER
      \n
      \n
      \n
      \n

      eToro

      \n
      \n
      \"eToro\"
      \n
      \n
      \n

      Deposit $100 and get a $10 bonus! (US Only)

      \n
      \n

      \n

      \n

      \n
      \n
      \n

      Trade in a variety of assets including stocks, ETFs and cryptocurrencies

      \n
      \n

      \n

      \n

      \n
      \n
      \n

      eToro offers trading tools to help both novices and experts

      \n
      \n

      \n

      \n

      \n
      \n
      \n
      \n
      \n
      \n
      \"eToro\"
      \n
      Learn More \"Arrow\"

      \n
      Via eToro's Website
      \n
      \n
      \n
      \n
      \n
      \n

      \n

      \n

      \n

      \n

      \n
      \n
      \n

      \n

      \n

      \n

      \n

      \n
      \n
      \n

      \n

      \n

      \n

      \n

      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n

      How to Use ROI

      \n

      ROI may be used by regular investors to evaluate their portfolios, or it can be applied to assess almost any type of expenditure.

      \n

      A business owner could use ROI to calculate the return on the cost of advertising, for instance. If spending $50,000 on advertising generated $750,000 in sales, the business owner would be getting a 1,400% ROI on the ad expenditure. Similarly, a real estate owner mulling new appliances might consider the ROI from two different renovation options, factoring in cost and potential rent increases, to make the right choice.

      \n

      Just keep in mind that ROI is only as good as the numbers you feed into your calculation, and ROI cannot eliminate risk or uncertainty. When you use ROI to decide on future investments, you still need to factor in the risk that your projections of net profits can be too optimistic or even too pessimistic. And, as with all investments, historical performance is no guarantee of future success.

      \n

      What Is a Good ROI?

      \n

      According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation.

      \n

      Because this is an average, some years your return may be higher; some years they may be lower. But overall, performance will smooth out to around this amount.

      \n

      That said, determining the appropriate ROI for your investment strategy requires careful consideration rather than a simple benchmark. The S&P 500 may not be appropriate for the level of risk you\u2019re willing to take on or the asset class you\u2019re investing in, for instance. To calculate the ROI that\u2019s good for you, ask yourself the following questions:

      \n
        \n
      • How much risk can I afford to take on?
        • \n
      • What will happen if I lose the money I invest?
        • \n
      • How much profit do I need for this investment to take on the prospect of losing money?
        • \n
      • What else could I do with this money if I don\u2019t make this investment?
        • \n
      \n

      Limitations of ROI

      \n

      ROI is not without limitations. First and foremost, ROI does not take time into account.

      \n

      If one investment had an ROI of 20% over five years and another had an ROI of 15% over two years, the basic ROI calculation cannot help you determine which investment was best. That\u2019s because it doesn\u2019t take into account compounding returns over time.

      \n

      Annualized ROI can help avoid this limitation. To calculate annualized ROI, you need to employ a little bit of algebra. The value n in the superscript below is key, as it represents the number of years the investment is held.

      \n

      Annualized ROI = {[1 + (Net Profit / Cost of Investment)] (1/n) \u2013 1} x 100

      \n

      If you bought a portfolio of securities worth $35,000, and five years later your portfolio was worth $41,000, you\u2019d have earned an annualized ROI of 3.22%. The formula would look like this:

      \n

      Annualized ROI = {[1 + (6,000 / 35,000)] (1/5) \u2013 1} x 100 = 3.22%

      \n

      Accurate ROI calculations depend on factoring in all costs, not merely the initial cost of the investment itself. Transaction costs, taxes, maintenance costs and other ancillary expenditures need to be baked into your calculations.

      \n

      Finally, an ROI calculation that depends on estimated future values but does not include any kind of assessment for risk can be a problem for investors. It is easy to be tempted by high potential ROIs. But the calculation itself does not give any indication of how likely that kind of return will be. This means investors should tread carefully.

      \n

      The Bottom Line

      \n

      ROI is an understandable and easily calculated metric for determining the efficiency of an investment. This widely used calculation allows you to compare apple-to-apples among investment options.

      \n

      But ROI cannot be the only metric investors use to make their decisions as it does not account for risk or time horizon, and it requires an exact measure of all costs. Using ROI can be a good place to start in evaluating an investment, but don\u2019t stop there.

      \n\n
      \n
      \n
      \n\t\t

      \n

      \t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\n\t\t

      \n
      \n
      \n

      \n\t\t\t\tFind a vetted financial advisor\n\t\t\t

      \n
      Take the SmartAsset quiz to get matched with vetted financial advisors who serve your area.
      \n

      \n
      \n\t\t\t\t\t\t\n\t\t\t\tFind an advisor\n\t\t\t\n\t\t\t\t\t
      \n

      \n
      \n\n \n\n\n\n\n
      \n
      \n \n
      \n
      \n
      \n

      \n \n

      \n
      \n
      \n
      \n \n
      \n
      \n
      \n \n \n \n \n Was this article helpful?\n
      \n
      \n \n
      \n
      \n
      \n\n
      \n
      \n
      \n \n \n \n \n \n \n \n \n \n
      \n
      \n
      Send feedback to the editorial team
      \n
      \n\n
      \n\n
      \n
      \n \n
      \n
      \n
      \n \n \n \n \n \n
      \n
      Please rate the article
      \n
      \n \n \n \n \n \n \n \n
      \n\n \n \n \n
      Please enter valid email address
      \n \n \n\n
      We'd love to hear from you, please enter your comments.
      \n
      Invalid email address
      \n \n
      \n\n
      \n\n
      \n \"User\n
      \n
      \n
      \n\n
      \n
      \n
      \n \"Success\n
      Thank You for your feedback!
      \n
      \n
      \n
      \n\n
      \n
      \n
      \n \"Error\n
      Something went wrong. Please try again later.
      \n
      \n
      \n
      \n
      \n
      \n\n \n
      \n
      \n \n
      \n
      \n
      \n
      \n
      \n
      \n
      Buying Guides
      \n \n
      \n
      \n
      \n
      \n
      Basics
      \n \n
      \n
      \n
      \n
      \n
      Guides
      \n \n
      \n
      \n
      \n
      \n
      Metals
      \n \n
      \n
      \n
      \n
      \n
      Calculators
      \n \n
      \n
      \n
      \n
      \n
      Investing Reviews
      \n \n
      \n
      \n
      \n \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n \n\n\t
      \n\t\t
      \n\t\t\t

      \n\t\t\t\tMore from\n\t\t\t\t\n\t\t\t\t\t\"forbes-advisor\"/\n\t\t\t\t\n\t\t\t

      \n\t\t\t
      \n\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"Top\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      Top 10 Warren Buffett Stocks Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Kat By Kat Tretina Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      7 Best Volatility ETFs Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"5\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      5 Best Currency ETFs Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"6\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      6 Best ETFs For Inflation Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      7 Best Balanced ETFs Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t
      7 Best Dividend ETFs Of March 2024
      \n\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      \n\t\t\t\t\t\t      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\t\t\t
      \n\t\t\t
      \n\t\t\t\t\t
      \n\t
      \n\n\n\n
      \n
      \n Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.

      Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author\u2019s alone and have not been provided, approved, or otherwise endorsed by our partners.\n
      \n
      \n
      \n
      \n
      \n \n \"Emily\n \n
      \n
      \n \n Emily Guy Birken\n \n
      Contributor
      \n
      \n
      \n
      \n

      Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.

      \n
      \n
      \n
      \n
      \n\t\n
      \n
      \n
      \n \n
      \n\n
      \n \n \n \n
      \n \n
      \n
      \n \n \n
      \n
      \n
      \n
      lorem
      \n
      \n
      \n
      Are you sure you want to rest your choices?
      \n
      \n \n \n
      \n
      \n\n \n\t\t\t\t\n\t\t\n\t\t\n\t\t\t
      \n \n \n
      \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n \n \n \n\n
      \n The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources. First, we provide paid placements to advertisers to present their offers. The compensation we receive for those placements affects how and where advertisers\u2019 offers appear on the site. This site does not include all companies or products available within the market. Second, we also include links to advertisers\u2019 offers in some of our articles; these \u201caffiliate links\u201d may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor. While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our partners who offer products that we have affiliate links for.\n
      \n\n\t\t\n\t\t\n\t\n \n\t\t\n\t\t\t\n\t\t
      \n\n\n", + "page_last_modified": "" + }, + { + "page_name": "What Is Return On Investment (ROI)? \u2013 Forbes Advisor", + "page_url": "https://www.forbes.com/advisor/investing/roi-return-on-investment/", + "page_snippet": "Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency. Let's take a look at how it's used by both individual investors and businesses. What Is ROI? When you puReturn on investment is a metric used to understand the profitability of an investment. Annualized ROI = {[1 + (Net Profit / Cost of Investment)] (1/n) \u2013 1} x 100 \u00b7 If you bought a portfolio of securities worth $35,000, and five years later your portfolio was worth $41,000, you\u2019d have earned an annualized ROI of 3.22%. The formula would look like this: ROI is closely related to measures like return on assets (ROA) and return on equity (ROE). To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula: ... Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula: ... Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. Here\u2019s how you would calculate your ROI for this investment:", + "page_result": "\n\n\t\n\t\t\n\t\t\n \t\t\n\t\t\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t What Is Return On Investment (ROI)? – Forbes Advisor\n\n\n\n\n\n\n\n\n\n\n \n \n\t\t\t\t\n\t\t\n\t\t\n\t\t\t\n\t\t\n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\t\n\t\t\n\n\n\t\t\t \t\t \n \n \t\n \n\n\t\t\n\t
      \n\t\n \n\n\n \n\n\n \n\n
      \n\t
      \n\t\t
      \n\t\t\t
      \n\t\t\t\t
      \n\t\t\t\t\tSelect Region\n\t\t\t\t
      \n\t\t\t\t
      \n\t\t\t\t\t
        \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"US\"\n\t\t\t\t\t\t\t\tUnited States\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"UK\"\n\t\t\t\t\t\t\t\tUnited Kingdom\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"DE\"\n\t\t\t\t\t\t\t\tGermany\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"IN\"\n\t\t\t\t\t\t\t\tIndia\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"AU\"\n\t\t\t\t\t\t\t\tAustralia\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"IT\"\n\t\t\t\t\t\t\t\tItaly\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t\t
      • \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t\t\t\"CA\"\n\t\t\t\t\t\t\t\tCanada\n\t\t\t\t\t\t\t
        \n\t\t\t\t\t\t
        • \n\t\t\t\t\t
      \n\t\t\t\t
      \n\t\t\t
      \n\t\t
      \n\t
      \n\t
      \n\t\t
      \n\t\t\t
      \n\t\t\t\t
      \n\t\t\t\t\t
      \n\t\t\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t
      \n\t\t\t\t
      \n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t
      \n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\n\t
      \t\t\t\t\n\t\t\t
      \n\t\t\t
      \n
      \n\t
      \n
      \n\t
      \n\t\t
      \n\t\t\t \n\t\t\t \n\t\t
      \n\t\t
      \n\t\t\t\n\t\t\t\n\t\t
      \n\t
      \n
      \n\n\t\n\n\n\n \n \n \n \n \n\n
      \n
      \n \n \n \n \n
      \n       		\n

      You might be using an unsupported or outdated browser. To get the best possible experience please use the latest version of Chrome, Firefox, Safari, or Microsoft Edge to view this website.

      \n       		\n \n
      \n\n\n
      \n
      \n
      \n
      \n
      \n
      \n
      \n
      \n \n
      \n\t \n\tAdvertiser Disclosure\n\t
      \n

      Return On Investment (ROI)

      \n
      \"Emily
      \"Emily
      Emily Guy BirkenContributor
      Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.
      \"See
      Emily Guy Birken
      \"Emily
      Emily Guy BirkenContributor
      Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.
      \"See
      Contributor
      \"Benjamin
      Benjamin Curry
      Benjamin Curryeditor
      Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
      \"See

        Fact Checked

        Benjamin Curry
        Benjamin Curry
        Benjamin Curryeditor
        Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
        \"See
          editor

          Fact Checked

          Updated: Sep 28, 2022, 1:01am

          \n
          \n Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.\n
          \n
          \n \n \n \n
          \n \"Return\n Getty\n
          \n
          \n
          \n

          Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency. Let’s take a look at how it’s used by both individual investors and businesses.

          \n

          What Is ROI?

          \n

          When you put money into an investment or a business endeavor, ROI helps you understand how much profit or loss your investment has earned.

          \n

          Return on investment is a simple ratio that divides the net profit (or loss) from an investment by its cost. Because it is expressed as a percentage, you can compare the effectiveness or profitability of different investment choices.

          \n

          Read More: Check out our ROI calculator

          \n

          ROI is closely related to measures like return on assets (ROA) and return on equity (ROE).

          \n

          How to Calculate ROI

          \n

          To calculate return on investment, divide the amount you earned from an investment\u2014often called the net profit, or the cost of the investment minus its present value\u2014by the cost of the investment and multiply that by 100. The result should be represented as a percentage. Here are two ways to represent this formula:

          \n

          ROI = (Net Profit / Cost of Investment) x 100

          \n

          ROI = (Present Value – Cost of Investment / Cost of Investment) x 100

          \n

          Let\u2019s say you invested $5,000 in the company XYZ last year, for example, and sold your shares for $5,500 this week. Here\u2019s how you would calculate your ROI for this investment:

          \n

          ROI = ($5,500 – $5,000 / $5,000) x 100

          \n

          Your return on investment in company XYZ would be 10%. This simple example leaves out capital gains taxes or any fees involved in buying or selling the shares, but a more realistic calculation would factor those into the cost of the investment.

          \n

          The percentage figure delivered by the calculation is ROI\u2019s superpower. Instead of a specific dollar amount, you can take this percentage and compare it to the ROI percentage of other investments across different asset classes or currencies to determine which gives the highest yield.

          \n\n
          \n
          \n
          FEATURED PARTNER OFFER
          \n
          \n
          \n
          \n

          eToro

          \n
          \n
          \"eToro\"
          \n
          \n
          \n

          Deposit $100 and get a $10 bonus! (US Only)

          \n
          \n

          \n

          \n

          \n
          \n
          \n

          Trade in a variety of assets including stocks, ETFs and cryptocurrencies

          \n
          \n

          \n

          \n

          \n
          \n
          \n

          eToro offers trading tools to help both novices and experts

          \n
          \n

          \n

          \n

          \n
          \n
          \n
          \n
          \n
          \n
          \"eToro\"
          \n
          Learn More \"Arrow\"

          \n
          Via eToro's Website
          \n
          \n
          \n
          \n
          \n
          \n

          \n

          \n

          \n

          \n

          \n
          \n
          \n

          \n

          \n

          \n

          \n

          \n
          \n
          \n

          \n

          \n

          \n

          \n

          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n

          How to Use ROI

          \n

          ROI may be used by regular investors to evaluate their portfolios, or it can be applied to assess almost any type of expenditure.

          \n

          A business owner could use ROI to calculate the return on the cost of advertising, for instance. If spending $50,000 on advertising generated $750,000 in sales, the business owner would be getting a 1,400% ROI on the ad expenditure. Similarly, a real estate owner mulling new appliances might consider the ROI from two different renovation options, factoring in cost and potential rent increases, to make the right choice.

          \n

          Just keep in mind that ROI is only as good as the numbers you feed into your calculation, and ROI cannot eliminate risk or uncertainty. When you use ROI to decide on future investments, you still need to factor in the risk that your projections of net profits can be too optimistic or even too pessimistic. And, as with all investments, historical performance is no guarantee of future success.

          \n

          What Is a Good ROI?

          \n

          According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation.

          \n

          Because this is an average, some years your return may be higher; some years they may be lower. But overall, performance will smooth out to around this amount.

          \n

          That said, determining the appropriate ROI for your investment strategy requires careful consideration rather than a simple benchmark. The S&P 500 may not be appropriate for the level of risk you\u2019re willing to take on or the asset class you\u2019re investing in, for instance. To calculate the ROI that\u2019s good for you, ask yourself the following questions:

          \n
            \n
          • How much risk can I afford to take on?
            • \n
          • What will happen if I lose the money I invest?
            • \n
          • How much profit do I need for this investment to take on the prospect of losing money?
            • \n
          • What else could I do with this money if I don\u2019t make this investment?
            • \n
          \n

          Limitations of ROI

          \n

          ROI is not without limitations. First and foremost, ROI does not take time into account.

          \n

          If one investment had an ROI of 20% over five years and another had an ROI of 15% over two years, the basic ROI calculation cannot help you determine which investment was best. That\u2019s because it doesn\u2019t take into account compounding returns over time.

          \n

          Annualized ROI can help avoid this limitation. To calculate annualized ROI, you need to employ a little bit of algebra. The value n in the superscript below is key, as it represents the number of years the investment is held.

          \n

          Annualized ROI = {[1 + (Net Profit / Cost of Investment)] (1/n) \u2013 1} x 100

          \n

          If you bought a portfolio of securities worth $35,000, and five years later your portfolio was worth $41,000, you\u2019d have earned an annualized ROI of 3.22%. The formula would look like this:

          \n

          Annualized ROI = {[1 + (6,000 / 35,000)] (1/5) \u2013 1} x 100 = 3.22%

          \n

          Accurate ROI calculations depend on factoring in all costs, not merely the initial cost of the investment itself. Transaction costs, taxes, maintenance costs and other ancillary expenditures need to be baked into your calculations.

          \n

          Finally, an ROI calculation that depends on estimated future values but does not include any kind of assessment for risk can be a problem for investors. It is easy to be tempted by high potential ROIs. But the calculation itself does not give any indication of how likely that kind of return will be. This means investors should tread carefully.

          \n

          The Bottom Line

          \n

          ROI is an understandable and easily calculated metric for determining the efficiency of an investment. This widely used calculation allows you to compare apple-to-apples among investment options.

          \n

          But ROI cannot be the only metric investors use to make their decisions as it does not account for risk or time horizon, and it requires an exact measure of all costs. Using ROI can be a good place to start in evaluating an investment, but don\u2019t stop there.

          \n\n
          \n
          \n
          \n\t\t

          \n

          \t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t\n\t\t

          \n
          \n
          \n

          \n\t\t\t\tFind a vetted financial advisor\n\t\t\t

          \n
          Take the SmartAsset quiz to get matched with vetted financial advisors who serve your area.
          \n

          \n
          \n\t\t\t\t\t\t\n\t\t\t\tFind an advisor\n\t\t\t\n\t\t\t\t\t
          \n

          \n
          \n\n \n\n\n\n\n
          \n
          \n \n
          \n
          \n
          \n

          \n \n

          \n
          \n
          \n
          \n \n
          \n
          \n
          \n \n \n \n \n Was this article helpful?\n
          \n
          \n \n
          \n
          \n
          \n\n
          \n
          \n
          \n \n \n \n \n \n \n \n \n \n
          \n
          \n
          Send feedback to the editorial team
          \n
          \n\n
          \n\n
          \n
          \n \n
          \n
          \n
          \n \n \n \n \n \n
          \n
          Please rate the article
          \n
          \n \n \n \n \n \n \n \n
          \n\n \n \n \n
          Please enter valid email address
          \n \n \n\n
          We'd love to hear from you, please enter your comments.
          \n
          Invalid email address
          \n \n
          \n\n
          \n\n
          \n \"User\n
          \n
          \n
          \n\n
          \n
          \n
          \n \"Success\n
          Thank You for your feedback!
          \n
          \n
          \n
          \n\n
          \n
          \n
          \n \"Error\n
          Something went wrong. Please try again later.
          \n
          \n
          \n
          \n
          \n
          \n\n \n
          \n
          \n \n
          \n
          \n
          \n
          \n
          \n
          \n
          Buying Guides
          \n \n
          \n
          \n
          \n
          \n
          Basics
          \n \n
          \n
          \n
          \n
          \n
          Guides
          \n \n
          \n
          \n
          \n
          \n
          Metals
          \n \n
          \n
          \n
          \n
          \n
          Calculators
          \n \n
          \n
          \n
          \n
          \n
          Investing Reviews
          \n \n
          \n
          \n
          \n \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n
          \n \n\n\t
          \n\t\t
          \n\t\t\t

          \n\t\t\t\tMore from\n\t\t\t\t\n\t\t\t\t\t\"forbes-advisor\"/\n\t\t\t\t\n\t\t\t

          \n\t\t\t
          \n\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"Top\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          Top 10 Warren Buffett Stocks Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Kat By Kat Tretina Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          7 Best Volatility ETFs Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"5\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          5 Best Currency ETFs Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"6\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          6 Best ETFs For Inflation Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          7 Best Balanced ETFs Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t
          \n\t\t\t\t\t\t\n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"7\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t
          7 Best Dividend ETFs Of March 2024
          \n\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t\"Barbara By Barbara Friedberg Contributor\t\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t\t
          \n\t\t\t\t\t\t          \n\t\t\t\t\t
          \n\t\t\t\t\t\t\t\t\t
          \n\t\t\t
          \n\t\t\t\t\t
          \n\t
          \n\n\n\n
          \n
          \n Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.

          Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author\u2019s alone and have not been provided, approved, or otherwise endorsed by our partners.\n
          \n
          \n
          \n
          \n
          \n \n \"Emily\n \n
          \n
          \n \n Emily Guy Birken\n \n
          Contributor
          \n
          \n
          \n
          \n

          Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.

          \n
          \n
          \n
          \n
          \n\t\n
          \n
          \n
          \n \n
          \n\n
          \n \n \n \n
          \n \n
          \n
          \n \n \n
          \n
          \n
          \n
          lorem
          \n
          \n
          \n
          Are you sure you want to rest your choices?
          \n
          \n \n \n
          \n
          \n\n \n\t\t\t\t\n\t\t\n\t\t\n\t\t\t
          \n \n \n
          \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n \n \n \n\n
          \n The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources. First, we provide paid placements to advertisers to present their offers. The compensation we receive for those placements affects how and where advertisers\u2019 offers appear on the site. This site does not include all companies or products available within the market. Second, we also include links to advertisers\u2019 offers in some of our articles; these \u201caffiliate links\u201d may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor. While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our partners who offer products that we have affiliate links for.\n
          \n\n\t\t\n\t\t\n\t\n \n\t\t\n\t\t\t\n\t\t
          \n\n\n", + "page_last_modified": "" + } + ] +} \ No newline at end of file