Methodology
How we calculate ROI
Our methodology for the ROI calculator: the formula, step-by-step calculation, authoritative sources, and limitations. Reviewed quarterly.
Formula
ROI = (Gain − Cost) / Cost × 100
Step-by-step
- 1
Determine the total cost: the initial investment plus any fees, commissions, or holding costs.
- 2
Determine the total gain: the final value minus the cost, OR the net profit from the investment.
- 3
Subtract cost from gain: this is the net return (positive or negative).
- 4
Divide the net return by the cost: this gives a decimal.
- 5
Multiply by 100 to express as a percentage.
- 6
A positive ROI means profit; negative means loss.
Authoritative sources
Every claim on this page is backed by an authoritative source.
Assumptions
What we take to be true when applying this formula.
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All costs are accounted for (acquisition costs, fees, taxes, holding period).
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The final gain is the net amount received, not the gross.
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No consideration of time. For multi-year investments, use CAGR for an annualized figure.
Limitations
What this method does NOT capture.
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ROI ignores the time value of money. A 50% ROI over 1 year is very different from 50% over 10 years.
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ROI does not capture risk. Two investments with the same ROI can have very different risk profiles.
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ROI can be inflated by delayed costs or unrecognized follow-on investments.
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For complex projects with multiple cash flows, NPV or IRR is more appropriate.
Last reviewed: 2026-06-15 • Reviewed by: CalcxApp editorial team