ROI Calculator
What you put in versus what you got out — total return and per-year.
How this is calculated
ROI = (final − initial) ÷ initial × 100; annualised = (final ÷ initial)^(1 ÷ years) − 1
Worked example: $1,000 → $1,500 over 3 years → a 50% total return and about 14.5%/year annualised. The annualised figure is the one to hold up against other investments.
Simple return is not annual return
The most common mistake with ROI is comparing returns earned over different periods as if they were the same thing. Turning R100,000 into R150,000 is a 50% return, and whether that is excellent or mediocre depends entirely on whether it took one year or ten. Over one year it is 50% a year; over ten it is about 4.1% a year, which a savings account might have matched with no risk at all.
The annualised figure — the compound annual growth rate — is what makes two investments comparable: CAGR = (end ÷ start)^(1/years) − 1. Any ROI quoted without a time period should be treated as incomplete information rather than a good number.
What belongs in the cost side
ROI is only honest if the denominator is complete. For an investment that means fees, commissions, spreads and taxes, all of which are real money that left your pocket. For a property it means transfer costs, bond registration, maintenance, rates and vacancy periods — a rental yield calculated on purchase price alone routinely overstates the return by several percentage points. For a business project it means staff time, which is the cost most frequently omitted and often the largest.
Opportunity cost belongs in the comparison even when it does not belong in the arithmetic. A project returning 8% is only attractive if the alternative use of the same money and attention returns less.
Where ROI is the wrong measure
ROI ignores the timing of cash flows within the period, so it cannot distinguish between money returned early and money returned at the end — a serious limitation when the early money could have been reinvested. For projects with irregular cash flows, net present value and internal rate of return handle this properly by discounting each flow to its present value.
It also ignores risk entirely. A 12% return from a government bond and a 12% return from a speculative venture are identical in an ROI calculation and are not remotely the same investment. Comparing returns without comparing the range of outcomes that produced them is how portfolios get built badly.
A note on marketing ROI
Advertising returns are quoted as ROAS — revenue divided by ad spend — rather than profit-based ROI, which flatters them. A 4:1 ROAS on a product with a 25% gross margin is breaking even, not winning. Convert to margin before celebrating, and be sceptical of attribution: the last click is rarely the whole reason a sale happened.
Frequently asked questions
Total return or annualised — which matters?
Total return tells you how much you made overall; the annualised rate makes different holding periods comparable. A 50% total return over ten years (about 4%/year) is far weaker than 50% over two (about 22%/year) — always compare on the annualised figure.
Does this include dividends or fees?
It compares the amount in to the amount out, so include dividends in the exit value and subtract fees to keep it honest. Garbage in, garbage out — the maths is only as good as the numbers you enter.