What is ROI?
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. It compares the profit or loss relative to the initial cost.
The ROI Formula
The formula is short and memorable:
r = (F - P)/ P
- F — final value (or total amount returned)
- P — principal (the starting amount)
- r — ROI, as a decimal (so 6% becomes 0.06)
A Worked Example
Suppose your starting amount is $5,000, and you have $7,000 after 3 years of investment. Plugging into the formula:
r = (7000 - 5000)/5000 = 40%
Another example: If you invest $1,000 and it grows to $1,500, your ROI is 50%.
Tips for Using This Calculator
- Enter the Principal Amount greater than 0.