Methodology
This page describes how the roicalculator.live ROI calculator computes results, the formulas used, and the assumptions applied.
ROI Formula
The calculator uses the standard ROI formula:
ROI = [(Final Value − Initial Investment) / Initial Investment] × 100
Where:
- Initial Investment: The amount invested at the start
- Final Value: The value at the end of the holding period
The result is expressed as a percentage. A positive value indicates a gain; a negative value indicates a loss.
Annualized ROI
Annualized ROI converts the total return into an equivalent compound annual growth rate:
Annualized ROI = [(Final Value / Initial Investment)1/n − 1] × 100
Where n is the number of years. Fractional years (e.g., 2.5) are supported. This formula assumes compounding and is appropriate for investments that grow (or decline) over time without intermediate cash flows.
Target ROI Mode (Reverse Calculation)
When Target ROI mode is enabled, the user enters a desired annual ROI percentage. The calculator solves for the final value required to achieve that annualized return:
Final Value = Initial Investment × (1 + r)n
Where r is the target annual ROI expressed as a decimal (e.g., 0.10 for 10%) and n is the number of years.
Total Profit
Total profit is computed as:
Total Profit = Final Value − Initial Investment
No adjustment is made for inflation, taxes, or fees. The user is responsible for considering these factors.
5-Year Projection Chart
The projection chart assumes constant compound growth at the annualized rate derived from the user’s inputs. Year 0 is the initial investment. Each subsequent year shows the projected value if growth continues at that rate. This is illustrative only and does not predict actual future performance.
Assumptions and Limitations
- Single cash flow: The calculator assumes one initial investment and one final value. It does not handle multiple deposits or withdrawals. For that, use IRR.
- No fees or taxes: Transaction costs, management fees, and taxes are not included.
- Constant growth: The annualized rate and projection assume steady compound growth, which may not reflect real investments.
- Input validation: Initial investment and period must be positive. Final value must be non-negative.
Rounding
ROI and annualized ROI are displayed to two decimal places. Total profit is displayed with two decimal places in currency format. Internal calculations use full precision.