How to Calculate Return on Investment

To calculate return on investment, use ROI = (net gain / cost of investment) x 100. Subtract what you put in from what you got out, divide that net gain by what you put in, and multiply by 100 to turn it into a percent. That single number tells you how much each dollar you invested earned or lost.

What Is Return on Investment?

Return on investment, or ROI, is a simple ratio that measures how much money an investment made or lost relative to what it cost. It answers a plain question: for every dollar you put in, how many cents came back as profit? Because it is a percent, ROI lets you compare very different things on the same scale, whether that is a stock, a rental property, or a small side project.

The idea of return is standard across finance. The U.S. Securities and Exchange Commission defines return as the money made or lost on an investment over time, and ROI is just that return written as a percentage of the cost. Keep the meaning in mind as you work through the math, because a clean number is only useful when you know exactly what went into it.

The ROI Formula

The ROI formula has two equivalent forms. Both give the same answer, so use whichever is easier with the numbers in front of you.

ROI = (Net Gain / Cost of Investment) x 100

ROI = ((Final Value – Cost of Investment) / Cost of Investment) x 100

Here, net gain is simply the final value you received minus the total cost you paid. The final value is everything the investment returned to you, and the cost of investment is everything you spent to get and hold it. Divide one by the other, multiply by 100, and you have ROI as a percent.

How to Calculate ROI Step by Step

Working through the steps in order keeps you from missing a cost or misreading the result. Say you buy shares for 1,000 dollars and later sell them for 1,300 dollars, with 20 dollars in total trading fees.

Step 1: Add Up the Total Cost

Your cost of investment is not just the purchase price. Add every dollar you spent to buy and hold the investment, including the 20 dollars in fees. That brings your cost to 1,020 dollars. Skipping fees is the most common mistake and it flatters your ROI.

Step 2: Add Up the Final Value

The final value is everything you received back. In this example you sold for 1,300 dollars, so the final value is 1,300 dollars. If the investment also paid dividends or rent along the way, add those in too.

Step 3: Find the Net Gain

Subtract the cost from the final value: 1,300 minus 1,020 equals 280 dollars. That 280 dollars is your net gain, the actual profit after costs.

Step 4: Divide and Multiply by 100

Divide the net gain by the cost, then multiply by 100: (280 / 1,020) x 100 equals about 27.5 percent. Your ROI is 27.5 percent, meaning each dollar you invested returned about 27.5 cents in profit. You can check any calculation like this in seconds with our ROI calculator.

Worked ROI Examples

ROI works the same way across very different investments. The table below runs the formula on three cases: a stock trade, a rental property held for a year, and a small side project. Every figure already includes the costs and fees for that case.

The stock returned 27.5 percent, the rental 8.6 percent, and the side project lost money at negative 13.3 percent. Notice the side project ROI is negative because the total return was less than the total cost, which is exactly how a loss should read. The rental figure counts the purchase price plus buying and holding costs against the sale value plus any rent collected, so it captures the full picture rather than price alone.

Count All the Costs and Fees

The single biggest source of a wrong ROI is an incomplete cost figure. Your cost of investment should include the purchase price plus every related expense: broker commissions and trading fees, account or platform charges, closing and setup costs, and any ongoing upkeep such as maintenance on a property. Leave these out and your ROI looks better than reality.

Taxes matter too. Selling an investment for a profit can trigger a taxable gain, and that tax reduces what you actually keep. The IRS treats the profit from selling a capital asset such as a stock or property as a capital gain, which may be taxed. If you want a true after-tax ROI, subtract the tax you owe from your net gain before you run the formula. For a rough before-tax comparison you can skip it, but be clear with yourself about which version you are calculating.

Watching ROI across all your holdings also feeds into the bigger picture of what you own. Once you have the returns on individual investments, you can see how they add up in a full net worth calculator that tracks assets against debts.

The Main Limitation of ROI

ROI has one important blind spot: it ignores time. The formula treats a 27.5 percent return the same whether you earned it in one month or ten years, yet those are wildly different results. A 30 percent ROI over one year is excellent; the same 30 percent spread over a decade is modest. Because ROI has no time in it, comparing two investments with different holding periods on ROI alone can mislead you.

The fix is to convert ROI into a yearly figure, called an annualized return, which spreads the total return evenly across the years you held the investment. That puts everything on a per-year basis so a one-year win and a ten-year hold can be compared fairly. Our guide on ROI versus annualized return walks through how the two differ and when to use each. The SEC also offers a free compound interest calculator that shows how returns build over time.

Once you can compute ROI cleanly, the natural next question is whether the number is any good. What counts as strong depends on the risk you took and the alternatives you passed up, which is exactly what our explainer on what is a good ROI helps you judge.

FAQs About Calculating ROI

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Last updated September 10, 2026. This article is educational and does not offer individualized financial, tax, or investment advice; your costs, taxes, and holding period will change your results, so confirm any decision with a qualified professional before acting. The content was reviewed for accuracy by Prof. Dr. Khalil Mudassar, PhD.