Return on Investment
Percentage gain or loss on an investment.
Formula
Variables
Example
Buying at $200 and selling at $250 is an ROI of 50/200 × 100% = 25%.
How it works
Return on Investment (ROI) measures how much an investment has increased or decreased compared with the amount originally put in. The formula works by first finding the change in value, then dividing by the initial value so the result is scaled to the size of the original investment; multiplying by 100% turns it into a percentage. A positive ROI means profit, while a negative ROI means a loss.
When to use it
Use this formula when comparing the performance of investments such as stocks, property, business projects, ads, or equipment purchases. It is especially useful when you want to know how efficient an investment was relative to its starting cost.
Worked example, step by step
Initial value, Vi = $1,500 Final value, Vf = $1,800 Change in value = Vf - Vi = $1,800 - $1,500 = $300 ROI = ((Vf - Vi) / Vi) × 100% ROI = (300 / 1500) × 100% ROI = 0.2 × 100% ROI = 20% So the investment earned a 20% return.
Common mistakes to avoid
- Using the final value as the denominator instead of the initial value
- Forgetting to subtract the initial value before converting to a percentage
- Mixing up profit with ROI and reporting $300 instead of 20%
Did You Know?
ROI ignores time, so a 50% return over one year and over ten years look identical — a common pitfall.
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