ROI and CAGR, calculated
You enter the initial investment, the final value and the holding period in years. The calculator returns three results:
- Net profit = final − initial.
- Total ROI = (final − initial) ÷ initial × 100.
- Annualized (CAGR) = ((final ÷ initial)1 / years − 1) × 100.
ROI says how much you made in total, however long it took. CAGR spreads that gain into the constant yearly rate that would have produced it, assuming growth compounds. Profit and ROI are green when positive and red when negative. If the initial amount is 0, ROI and CAGR show a dash, and CAGR is also blank when the period is 0 years.
Worked example
An investment of 10,000 that grows to 16,000 after 3 years has a net profit of 6,000 and an ROI of 60%. The CAGR is 1.61/3 − 1 = 16.96% a year. A second investment that turned 10,000 into 14,000 in only 2 years has a smaller ROI of 40% but a better CAGR of 18.32%, which is why ROI alone is a poor way to compare investments of different lengths.
| Initial | Final | Years | ROI | CAGR |
|---|---|---|---|---|
| 10,000 | 16,000 | 3 | 60% | 16.96% |
| 10,000 | 11,000 | 0.5 | 10% | 21.00% |
| 10,000 | 7,000 | 2 | −30% | −16.33% |
| 20,000 | 50,000 | 5 | 150% | 20.11% |
Where ROI misleads
- Costs left out. ROI is only as good as the figures you put in. Fees, taxes, maintenance, and interest paid on borrowed money all belong in the final value or the initial amount. A property bought for 200,000 and sold for 230,000 is not a 15% return if agent fees and upkeep took 12,000.
- No cash flows in between. The tool takes one starting amount and one ending value. Regular deposits, dividends withdrawn along the way and uneven timing are not modelled. For recurring contributions use the SIP calculator; the investment calculator also handles regular additions.
- Short periods flatter CAGR. Annualizing a 10% gain in six months gives 21%, but nothing says the next six months will repeat it. Treat CAGR on periods under a year with caution.
- Losses need bigger gains. A 30% loss needs a gain of about 42.9% to break even, and CAGR is a smoothed average, not the actual year-by-year path.
- Inflation. The result is nominal. See the inflation calculator for the real value of the final amount.
For marketing or product-line ROI the same formula applies. The profit margin calculator is the right tool when the question is profit on a sale rather than on an invested sum.