Short answer: Investing $5.000,00 (plus $200.00 in costs) and getting back $6.500,00 leaves a gain of $1.300,00: an ROI of 25,0% over 2.0 years, equivalent to 11,80% per year.
The preloaded values are an example: replace them with your own figures.
Return on investment (ROI)
With these figures, investing $5.000,00 (plus $200.00 in costs) and getting back $6.500,00 leaves a gain of $1.300,00: an ROI of 25,0% over 2.0 years, equivalent to 11,80% per year.
Same total ROI over different terms
| Time frame | Annualized ROI |
|---|---|
| 1 year | 25,00% |
| 2 years | 11,80% |
| 3 years | 7,72% |
| 5 years | 4,56% |
Results are for reference only and are not actual figures. Values depend on the country, the financial institution, taxes and current laws, and must be validated with an authorized financial institution. Banco.guru is an educational guide to what can be achieved; it does not offer products or personalized financial advice.
Tips for using this result
- Compare projects by annualized ROI, not total ROI.
- Include all costs: maintenance, fees, taxes.
- A high ROI with a lot of risk may not be worth it.
- Also compare with inflation to see the real return.
What is ROI?
The return on investment measures how much you gained or lost relative to what you put in. Formula: ROI = (final value − investment − costs) ÷ (investment + costs).
Why annualize it?
A 30% ROI over 2 years is not the same as over 6 months. The Annualized ROI converts it into a rate per year: (1 + ROI)1/years − 1. That way you can compare projects with different time frames.
Limitations
- It doesn’t measure risk or liquidity.
- It doesn’t consider the timing of each cash flow (that’s what NPV and IRR are for).
- It depends on you including all real costs.
Use it as a first look and complement it with the cash flow of the project.
Frequently asked questions
What is a good ROI?
It depends on the risk, the time frame and the alternatives. Compare it with options of similar risk and with inflation.
Does ROI include taxes?
Only if you add them as a cost or subtract them from the final value.
Are ROI and profitability the same?
They are similar ideas. ROI is a specific way of measuring an investment’s profitability.
Can it be negative?
Yes, when you get back less than what you invested plus costs.
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