Business guide
How ROI Is Calculated
Learn the basic return-on-investment formula, interpret gains and losses, and understand what simple ROI leaves out.
The basic ROI formula
Simple ROI compares profit or loss with the initial investment: (total return − initial investment) ÷ initial investment × 100. In the implemented calculator, total return means the total amount received, not profit alone.
Worked example
An investment of $5,000.00 producing a total return of $6,250.00 has $1,250.00 profit and 25% ROI.
| Step | Calculation | Result |
|---|---|---|
| Profit | $6,250 − $5,000 | $1,250.00 |
| ROI | $1,250 ÷ $5,000 × 100 | 25% |
Total return below the investment produces negative ROI; equal values produce zero ROI. Try the ROI Calculator.
Profit and ROI answer different questions
Profit is a currency amount. ROI is relative, which can help compare differently sized investments. But comparisons need consistent scopes: include relevant costs and do not compare one-month ROI directly with five-year ROI as if time were irrelevant.
What simple ROI leaves out
This calculation does not annualize results or model cash-flow timing, compounding, inflation, taxes, fees, risk, or time value. It is a starting metric, not investment advice. Repeated-period growth uses a different model, explained in How Compound Interest Works; the Profit Margin Calculator instead uses revenue as its denominator.