- What is ROI and how is it calculated?
- ROI (Return on Investment) measures the profitability of an investment relative to its cost. It's calculated as: (Final Value − Initial Investment) ÷ Initial Investment × 100. A 35% ROI means you gained $0.35 for every $1 invested.
- What is annualized ROI and why does it matter?
- Annualized ROI converts total ROI into an equivalent annual rate, making it possible to compare investments held for different time periods. It's calculated as: ((Final Value ÷ Initial Investment) ^ (1 ÷ Years) − 1) × 100. A 35% total ROI over 2 years equals a 16.1% annualized ROI.
- Does ROI account for taxes or inflation?
- This calculator shows nominal ROI without adjusting for taxes or inflation. Real-world returns are reduced by capital gains taxes and eroded by inflation. To estimate real (inflation-adjusted) ROI, subtract the annual inflation rate from the annualized ROI.
- Is annualized ROI the same as CAGR?
- Yes — annualized ROI and CAGR (Compound Annual Growth Rate) use the same formula: ((Final Value ÷ Initial Investment) ^ (1 ÷ Years) − 1) × 100. CAGR is the term more commonly used in investing and finance contexts, while annualized ROI is used in broader business settings.
