What percentage return did an investment produce relative to its cost?
Return on investment compares net gain with the amount invested. Keeping the cost in the denominator makes projects of different sizes comparable, but it does not account for how long the money was committed.
The denominator that defines ROI
Total cost = Initial investment + Additional costsROI = [(Final value − Total cost) ÷ Total cost] × 100One cost, one ending value
The default example takes one initial cost and one final value. It shows the gain in currency first, then expresses that gain as a percentage of the original cost.
Illustrative inputs; currency amounts below use USD. Rates and prices are assumptions, not live quotes.
- Initial investment
- $5,000.00
- Final value
- $7,250.00
- Additional costs
- $0.00
Step-by-step calculation
- Total cost = 5,000 + 0 = 5,000.
- Net profit = 7,250 − 5,000 = 2,250.
- ROI = 2,250 ÷ 5,000 × 100 = 45%. This is the whole-period return, not an annual rate.
Intermediate figures are rounded for reading. Results use the full calculation precision.
Cash profit versus percentage efficiency
Use net profit to understand the money gained or lost and ROI to compare efficiency. Two investments can share the same ROI while producing very different cash profits.
Why ROI cannot compare time by itself
ROI is not an annual rate. Comparing a one-month return with a five-year return using ROI alone hides the difference in time.
- The cost input represents all capital committed to the calculation.
- The final value uses the same currency and valuation basis.
- Interim cash flows and the timing of returns are not modelled.
Calculations related to roi
The following tools examine neighbouring parts of the same calculation without changing the inputs or assumptions used above.
References
Sources and conventions
- SEC Investor.gov: investment costs
Background on costs that can reduce investment returns; the example uses only the fees entered.
Quick answers
Frequently asked questions
What should I include as an additional cost?
Include relevant fees, maintenance, transaction costs or other expenditure that forms part of the investment.
Does ROI account for time?
No. ROI measures total return without considering how long the investment was held; use CAGR for an annualised rate.
Can ROI be negative?
Yes. It is negative when final value is lower than the combined initial investment and additional costs.
Calculation method and limitations · Report an error
Educational content only. This guide is not financial advice.