Return on Investment (ROI) Calculator
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is a universal metric used in real estate, business, and stock markets to compare the profitability of different investments.
How is ROI calculated?
ROI simply compares the net profit to the cost of the investment.
Absolute ROI = (Net Profit / Total Investment) * 100
Annualized ROI = [(Final Value / Initial Value)^(1 / Years) - 1] * 100
Example:
You bought a property for ₹50,00,000 and sold it 5 years later for ₹75,00,000.
Net Profit = ₹25,00,000
Absolute ROI = (25,00,000 / 50,00,000) * 100 = 50%
Annualized ROI = [(75/50)^(1/5) - 1] * 100 = 8.45%
While making a 50% return sounds massive, factoring in the 5-year holding period shows that the annualized return was a moderate 8.45% per year.
Absolute vs Annualized ROI
- Absolute ROI: Good for short-term trades or flips (less than a year).
- Annualized ROI: Essential for multi-year investments because it accounts for the time value of money, allowing you to compare the real estate return against a standard 7% FD.