Return on investment (ROI) is a financial metric of profitability that is widely used to measure the return or gain from an investment. ROI is a simple ratio of the gain from an investment relative to its cost. It is as useful in evaluating the potential return from a stand-alone investment as it is in comparing returns from several investments.

In business analysis, ROI is one of the key metrics—along with other cash flow measures such as internal rate of return (IRR) and net present value (NPV)—used to evaluate and rank the attractiveness of a number of different investment alternatives. ROI is generally expressed as a percentage rather than as a ratio.

How to Calculate ROI

ROI net return formula.

ROI final value formula.

Interpreting ROI

A Simple ROI Example

An Alternative ROI Calculation

Annualized ROI

Annualized ROI formula.

Comparing Investments with Annualized ROI

ROI with Leverage

Unequal Cash Flows

Benefits of ROI

Limitations of ROI

The Bottom Line

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