What is ROI?
Return on Investment (ROI) is a performance metric used to evaluate the efficiency of an investment. It expresses profit or loss as a percentage of the initial investment. Formula: ROI = (Final Value − Initial Investment) / Initial Investment × 100.
Simple vs Annualized ROI
Simple ROI shows total return without accounting for time. Annualized ROI (also called CAGR — Compound Annual Growth Rate) converts the total return into a yearly rate using the formula: ((Final/Initial)^(1/years) − 1) × 100. This allows fair comparison between investments held for different periods.
How to Interpret ROI
ROI below 0% means a loss. 0–5% is low; 5–15% is moderate; 15–30% is good; above 30% is excellent — but always consider risk. A guaranteed 3% return may be better than a volatile 25% return depending on your goals.
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