What is ROI and how is it calculated?
Return on Investment (ROI) measures how much profit you made relative to how much you invested. It is expressed as a percentage and used to evaluate the efficiency of an investment or compare multiple investments side by side.
The formula is: ROI = (Net Gain divided by Cost of Investment) multiplied by 100. If you invested Rs 100,000 and received Rs 130,000 back, your net gain is Rs 30,000 and your ROI is 30 percent.
Simple ROI vs annualised ROI
Simple ROI tells you the total return over the entire investment period. Annualised ROI converts that into a yearly rate so you can compare investments of different durations fairly. A 30 percent ROI over 3 years is only 9.1 percent per year — not 10 percent, because of compounding. This calculator shows both.
When to use an ROI calculator
Before making a business investment — should you buy new equipment, hire an employee, or run a marketing campaign? For evaluating stocks, mutual funds, or cryptocurrency investments. For comparing whether improving a business process is worth the implementation cost. For freelancers evaluating whether to buy a tool or software that will save time.
What is a good ROI?
For stock market investments, the historical average is around 10 percent per year in developed markets. For business investments, most businesses target at least 15 to 25 percent ROI. For marketing campaigns, 500 percent ROI (Rs 5 in revenue for every Rs 1 spent) is considered good. Pakistan stock market and real estate investors typically look for 15 to 30 percent annual returns.
Frequently Asked Questions
What is a negative ROI? A negative ROI means the investment lost money. The net gain is negative because you received less than you invested.
Does ROI include taxes? Standard ROI calculations do not account for taxes. For after-tax ROI, use your net gain after tax in the calculation.
How is ROI different from profit margin? Profit margin measures how much of revenue becomes profit. ROI measures how much your investment grew. A business can have a low profit margin but high ROI if it turns over inventory quickly.
Profit Margin Calculator · Compound Interest Calculator · Break-Even Calculator · Savings Goal Calculator