ROI (Return on Investment) is a financial metric that measures the profitability of an investment. It is expressed as a percentage and calculated as: ROI = ((Final Value - Initial Investment) / Initial Investment) × 100.

What is annualised ROI?

Annualised ROI adjusts the total ROI to reflect a per-year return, making it easier to compare investments held for different durations. Formula: Annualised ROI = ((1 + ROI/100)^(1/years) - 1) × 100.

Is a higher ROI always better?

A higher ROI indicates greater returns relative to cost, but it does not account for risk, time horizon, or opportunity cost. Always consider these factors when comparing investments.

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ROI Results

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What is ROI?

Return on Investment (ROI) measures the gain or loss generated on an investment relative to its cost. It is one of the most widely used profitability metrics and is expressed as a percentage.

ROI Formula

ROI = ((Final Value − Initial Investment) ÷ Initial Investment) × 100

Annualised ROI = ((1 + ROI/100)^1/years − 1) × 100

Example:

Initial Investment = 100,000
Final Value = 150,000
ROI = ((150,000 − 100,000) ÷ 100,000) × 100 = 50%
Over 3 years: Annualised ROI = (1.50^1/3 − 1) × 100 = 14.47%

When to Use ROI

Investment Comparison: Compare returns from different investments.
Business Decisions: Evaluate the profitability of a project or expenditure.
Real Estate: Measure returns on property investments.
Stock Market: Track portfolio performance over time.

Limitations of ROI

Time Factor: Basic ROI does not account for time. Use annualised ROI for time-adjusted comparison.
Risk: ROI does not reflect the risk involved in the investment.
Cash Flows: ROI does not consider intermediate cash flows (dividends, withdrawals).

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