Quick answer: Investing 10,000 and getting back 15,000 after 3 years is an ROI of 50%, or 14.47% a year annualized.
How it's calculated
ROI = (amount returned − amount invested) ÷ amount invested. Include everything you put in (price, fees, improvements) and everything you got back (sale value, rent, dividends).
Annualized ROI = (returned ÷ invested)^(1/years) − 1, the compound yearly rate, the same as the spreadsheet RRI function. It is lower than total ROI ÷ years because gains compound.
ROI ignores when money came in and out during the period. For several cash flows at different times use the IRR calculator; for a property, see the real estate calculator.
Worked examples
- 10,000 → 15,000 in 3 years: ROI 50%, annualized 1.5^(1/3) − 1 = 14.47%
- 1,000 → 2,000 in 5 years: ROI 100%, annualized 14.87%
Frequently asked questions
What is a good ROI?
Look at it against the risk and the time it took. Compare the annualized ROI with what a safe deposit or sukuk would have paid over the same years.
Can ROI be negative?
Yes, if you got back less than you put in. −100% means everything was lost.
Why use annualized ROI?
A 50% return over 3 years and over 10 years are very different. Annualizing puts both on the same yearly basis.
What is the formula for annualized ROI?
(amount returned ÷ amount invested)^(1 ÷ years) − 1. It lets you compare investments held for different lengths of time.
What should I include in the amount invested?
Everything you paid: the price, fees, commissions and improvements. Leaving costs out makes the ROI look better than it was.
When should I use IRR instead?
When money goes in or comes out at several different times. ROI treats everything as one amount in and one amount out.