How to Calculate a Return on an Investment

A Return on Investment (ROI) is calculated to measure the performance of one investment relative to another. ROI is expressed as a percentage and is based on returns over an associated time period, usually one year. For example, a 25 percent annual ROI means that a $100 investment would return $25 in one year. Thus, after one year, the total investment becomes $125.

Instructions

Difficulty: Easy

Things You’ll Need:

• Financial Statements
• Financial Calculator
• Paper And Pencils

1. Write down the amount of your total investment, including fees and expenses, if any. For example, if you bought $950 worth of stock and your fees were $50, then your total investment is $950 + $50, or $1,000.
2. Write down the amount of profit or loss associated with your investment. If your $1,000 investment in stocks is worth $1,200 one year later, then your profit is $1,200 - $1,000, or $200.
3. Calculate the ROI by dividing the profit by the total investment: $200/$1000 = 0.20, or a 20 percent annual ROI.

Tips & Warnings

• ROI can be expressed for different time periods: one year, one month, one week, one day. For example, if a $100 investment returns $150 after one month, then the ROI would be 50 percent monthly ($50 profit divided by $100 investment = 0.50, or 50 percent).
• Calculators and computer spreadsheet programs can be very useful in calculating ROI. Refer to their instruction manuals for more information.
• When comparing ROI for different investment opportunities, be sure all fees and expenses have been included to ensure a fair comparison. Some ROI quotes do not include fees and expenses and can therefore be misleading.