Calculate return on investment as a percentage.
ROI % = (Net gain − Cost) ÷ Cost × 100.
Return on Investment measures total gain as a percentage of what was originally invested, and its main appeal is simplicity — one number, easy to compute, easy to compare across very different kinds of investments at a glance. But that simplicity hides a real gap: plain ROI says nothing about how long the money was invested to earn that return. A 20% ROI earned in six months and a 20% ROI earned over five years represent very different investment performances, yet the raw ROI figure treats them identically.
This is why ROI is best used as a first-pass, same-timeframe comparison tool rather than the final word — comparing two investments held for the same period is meaningful, but comparing ROI figures across different holding periods without annualizing them can favor a genuinely worse investment that simply reports its return without the time dimension. When time matters (which is almost always, for anything beyond a same-day comparison), CAGR converts a multi-year ROI into an annualized rate that can be fairly compared across different holding periods, and XIRR extends that further to handle cases with multiple cash flows in and out over time — both are effectively ROI's more time-aware siblings.
ROI (Return on Investment) measures total gain or loss as a percentage of the original amount invested: (final value − initial investment) ÷ initial investment × 100. It's a single snapshot number that doesn't account for how long the money was invested.
Because ROI doesn't factor in time. A 20% ROI over 6 months is a far better result than a 20% ROI over 5 years, but the raw ROI number looks identical in both cases. Comparing ROI figures across different holding periods without annualizing them (via CAGR) can make a genuinely worse investment look equally good.
ROI gives total return over the entire holding period with no time adjustment. CAGR converts that same total return into an equivalent steady annual rate, making it possible to fairly compare investments held for different lengths of time. For a multi-year investment, CAGR is almost always the more useful figure to compare against other opportunities.
No — basic ROI is a raw calculation of gain versus initial investment and doesn't automatically factor in transaction costs, taxes on gains, or inflation's erosion of purchasing power. For a more realistic picture of actual wealth gained, those factors need to be subtracted separately, or a 'real return' (inflation-adjusted) figure used instead.