How Many Ways are There to Calculate ROI?

There are several methods to calculate Return On Investment (ROI), each suited for different contexts and types of investments. Here are some common ways:

1. Basic ROI Formula: The simplest way to calculate ROI is using the formula:

ROI = Net income/Cost of investment × 100

This formula gives a percentage that indicates how much profit was made relative to the investment cost.

2. Annualised ROI: This method adjusts the ROI to reflect annual performance, making it easier to compare investments held for different lengths of time. The formula is:

Annualised Return = (1+Total Return) ^ (1/N) – 1

Total Return is calculated with the formula: Ending Value – Beginning Value/ Beginning Value

N is the number of years you held the investment (You may use fractional years for periods less than one year)

If you’d like it expressed in terms of percentage, multiply the annualised return by 100.

3. Cumulative ROI: This calculates the total return over multiple periods, useful for investments that generate returns over time. The formula is:

Cumulative ROI = (Final Value – Initial Investment/Initial Investment) x 100

4. Risk-Adjusted ROI: This method considers the risk associated with an investment, providing a more nuanced view of returns. The formula is:

Risk-Adjusted ROI = (Return on Investment−Risk-Free Rate) / Standard Deviation of Investment Returns

Each method serves different purposes, so choosing the right one depends on your specific investment scenario. You may use the online ROI Calculator to get more specific calculations.