ROI Explained

Return on Investment (ROI) is a popular metric for evaluating whether money put into an asset, project, or business decision produced a worthwhile gain. It is simple, fast, and useful for first-level comparisons.

ROI Formula

ROI = (Net Gain / Total Invested Amount) × 100

If you invest $10,000 and value rises to $13,000, net gain is $3,000 and ROI is 30%.

Where ROI Helps Most

Project Screening

ROI is useful when you need a quick check to decide whether an idea appears financially reasonable.

Investment Comparison

When two options have similar holding periods, ROI can help rank outcomes.

Where ROI Can Mislead

ROI does not include time directly. A 30% return over 2 years and 30% over 10 years are very different outcomes. Pair ROI with annualized metrics like CAGR. Use the ROI and Investment Growth Calculator to compare both.

Practical Example

Option A: ROI 40% in 4 years. Option B: ROI 40% in 12 years. Same ROI, very different compounding pace. Annualized return reveals the difference immediately.