What is Return on Investment (ROI)?
Return on Investment (ROI) is a widely used financial metric to evaluate the profitability of an investment or to compare the efficiency of multiple different investments. ROI directly measures the amount of return on a particular investment relative to its initial cost.
Absolute ROI vs Annualized ROI (CAGR)
1. Absolute ROI
Absolute return is simply the total percentage of profit or loss made on an investment, regardless of how much time it took to achieve that return.
2. Annualized ROI (CAGR)
Annualized ROI or Compound Annual Growth Rate (CAGR) shows the yearly growth rate of an investment, assuming the profits are reinvested each year.
Why does Annualized ROI matter? Imagine Investment A gives a 50% Absolute ROI in 5 years, and Investment B gives a 30% Absolute ROI in 2 years. Which one is better? By calculating the Annualized ROI (CAGR), we find that Investment A grew at ~8.45% per year, while Investment B grew at ~14% per year. Therefore, Investment B is significantly more profitable over time.
Where can you use this ROI Calculator?
- Stock Market & Mutual Funds: Calculate the exact growth of your portfolio over several years.
- Real Estate: Compare the buying price of a property with its current market value to see your actual yearly growth rate.
- Business Ventures: Evaluate whether capital invested in a new project is generating a higher percentage return than keeping it in a bank fixed deposit.
- Cryptocurrency: Track the explosive (or negative) growth of volatile crypto assets.
Disclaimer: The ROI calculator results are for informational and educational purposes only. This tool calculates past or estimated future returns based solely on the numbers you input. It does not account for inflation, capital gains taxes, or brokerage fees, which will impact your actual take-home profit. Always consult a certified financial advisor before making major investment decisions.