 # Return On Investment Calculator

The truth about your investment is right in front of you. Our Return on Investment Calculator show you the profit and annual rate of return on your initial investment.

## What is a ROI calculator?

Put simply, the return on investment (ROI) is a versatile metric that is used to evaluate the profitability of an investment. One of the reasons for its popularity is its inherent simplicity. There are only a few variables that go into a ROI calculator, and it is a good proxy for assessing the profit that an investment will generate in the absence of other more complex metrics. The ROI calculator can be used for a range of purposes. Some of the most common ones include:

• Understanding the expected return of an investment to see whether you should pursue the investment or not
• Testing different variables of the investment to see how it changes overall ROI
• Benchmarking various investment alternatives to identify which one is the best according to how profitable it is over the period of time that you are calculating for

## How to use the HardbaconReturn on investment calculatorCalculator

The ROI calculator is designed to be an easy ‘plug and play’ option for users of all ages and levels of finance knowledge. All of the required inputs are labelled already. To start, all you need are the following items:

Amount invested: This number represents the total amount of capital that you put into a particular investment on Day 1.

Total amount at the end: If the investment has not yet been made, this figure will be the expected final value of the investment when your money returns to you. If the investment has already been made and you are simply looking to calculate ROI, plug in the total amount of money that you got when you redeemed the investment.

Investment time: There are two ways to enter the total time of the investment.

By dates: Here, you can enter the date that you entered the investment and then the date that you had your money returned to you.

By years: If you had invested in a security with a precise start and end date such as a 5-year Treasury bond for example, then you can simply enter the number of years that your money was invested for. This is also called the ‘tenor’ of the investment.

## Understanding the results of the ROI calculator

Once you have entered all the inputs, check again to verify their accuracy. This step is crucial as a slight error in numbers can skew the end results drastically. Once you have fact-checked the numbers, look to the right of your screen. Here, you should be able to see the following:

Amount invested: The calculator takes your original input and displays it again for your reference when selecting between different investments based on profitability.

Profit: By subtracting the ‘Amount Invested’ from the ‘Total Amount at the End’, the calculator shows you the exact profit number that this investment will make. Note that this is simply the amount of cash you receive over and above what you invested.

Total rate of return: The total return calculation effectively shows you the percentage return that your original investment generated. Note that this calculation does not take into account time. Whether you earned that return in 1, 5, 10 or an even greater number of years, the total rate of return you earn will always remain the same.

Annual rate of return: Not all investments are created equal. This is where you can see what your proposed investment generates on an annualized basis. For example, two investments that both generate a 5% total rate of return may seem to be equivalent at face value. However, the investment that generates that 5% in a shorter amount of time would be the better option for you to pursue as you are regaining your money in a smaller time period. If you are selecting between two investments that have an identical total rate of return, use the annual rate of return to make your final choice.

Pie chart: The pie chart is indicative of the composition of your ‘Total amount at the end’ number. The light green component of the chart indicates your amount invested. The orange component of the chart shows the profit you made. If you hover over each component, you can even see the percentage of the ‘Total amount at the end’ number that each of the ‘Amount invested’ and ‘Profit’ numbers comprise.

The Hardbacon Return on investment calculator only requires a few variables to churn out an accurate ROI number that you can use for your decision-making purposes. To understand these at a more fundamental level, here are some details on each of the inputs. Remember: an error in the inputs can magnify the error in the output, so you really want to make sure you are covering all your bases!

Amount invested: The ‘amount invested’ refers to all of the capital that you put into an investment on Day 1 of the investment. If you incur any specific costs as part of this transaction, those should be included too as part of the calculation. For example, imagine that you are buying an asset that costs \$100,000. However, the broker who you go through to make the purchase charges a fee of \$5,000. In this case, your total amount invested should be \$105,000 as it now includes all of the ancillary costs that went into making the investment a reality.

Total amount at the end: Similarly, for the ‘total amount at the end’ number, you ideally want to ensure that you are deducting all of the amounts that you have to pay before you get your investment back to you. For example, most stock brokerages worldwide will charge you a fee every time you sell a share. This fee may be fixed or variable, or a combination of the two depending on the brokerage. However, for our purposes, let’s imagine that it’s a variable fee of 1 cent per share sold. As such, if you sold 50,000 shares for a total of \$100,000, then you should deduct \$500 (1 cent x 500 shares) from the \$100,000 to calculate your true ROI.

Investment time: The investment timeline is important to note to assess how long the funds will be tied up for in the investment. In general, the longer the timeline, the lower your annual rate of return becomes. That means that it is vital for prospective investors to gauge the investment’s start date and end date in conjunction with the expected return that they can get.

By dates: Where the start and end dates for the investment are not a nice round number (like 2 years, 5 years, etc.), the calculator has built in functionality that enables you to drop in the precise dates of when you expect to put in the money and when you expect the funds to be redeemed back to you.

By times: In case you do know the exact duration of the investment, you can simply input the number (in years). You can even add in fractions of years such as 2.5, 2.75, and so on.

While the Return on investment calculator is a quick and easy tool that can be used by everyone to drive the initial analysis on a proposed investment, there are some consideration factors to keep in mind before you apply it for your purposes.

• Easy to use: The ROI formula requires just three variables: amount invested, amount returned, and the duration of the investment. This means that if you have a certain minimum rate of return in mind, you can quickly apply ROI to exclude or reject investments that do not meet that threshold, thereby simplifying your work for later.
• Easy to benchmark: When comparing between different investments, the ROI formula allows you to have a standardized view of your expected return. Benchmarking and prioritizing these different investments then becomes substantially more streamlined.
• Data is easy to obtain: Given that the rate of return calculator just needs three variables, analysts do not have to spend much time to gather the data the same way that they would for more complex analyses.

Before proceeding with the ROI formula, these points should be taken into consideration:

•   Time value of money is not considered: The time value of money is a simple concept. Essentially, it states that a dollar today is worth more than a dollar in the future due to factors like inflation which gradually diminish purchasing power over time. The return calculator does not take this into account as the variables represent the exact amount of cash invested and earned. Particularly for projects with longer durations, this time value of money concept may mean that a project that appears profitable from an ROI standpoint may not be truly profitable due to the erosion of purchasing power over the long duration.
• Investments are not always clear-cut: In a lot of cases, you can directly see the output of an investment versus the input, and calculate ROI easily. However, this is not always the case. Picture a marketing manager who buys a whole suite of software tools to run a single marketing campaign. While the manager knows the individual costs of each tool and the total return of the marketing campaign, he or she will not know how much of the total return was contributed to by each tool.
• Errors get magnified: As we briefly discussed before, errors in inputs get maginified in the output. For example, picture an investment where Person A places \$5,000 on Day 1 and receives \$8,000 in 2 years. The total rate of return is 60%. However, if the person forgot to add \$500 of input costs that they had to undertake to make the investment, that same ROI now falls to around 45%.

## What is a good ROI and how can ROI be increased?

The definition of a good ROI varies from industry to industry, and perhaps even from project to project. Depending on what purpose you are using the ROI for, the threshold for what is classified as a good ROI may be drastically different. Generally speaking though, if you are measuring the performance of your stock portfolio, a good benchmark is to use the S&P 500 return which has generally returned between 7-10% annually depending on the duration you are looking at.

If you are looking to assess whether an investment is profitable or not, the general rule is:

•   IF ROI > 0, then the investment is profitable. However, before going forward with the investment, you should assess other criteria too and benchmark alternatives.
•   IF ROI < 0, then the investment is not profitable.

The three levers that can be used to drive an increase in ROI are:

•   Reduce the size of the initial investment. Assuming the timeline and final amount remains the same, this will increase ROI as there is now greater profit generated on a smaller investment.
•   Increase the size of the final payout
• Shorten the timeline of the investment. If you can earn the same amount over a shorter period, your annualized ROI will start to look better even if your total return stays the same.

• ### 1. What is ROI and how is it calculated?

The Return on Investment (ROI) is a financial ratio that measures how well an investment has performed with respect to the initial investment put in. In simple words, it tracks the profit percentage (i.e., money received over and above the value of the initial investment). Generally, good investments are characterized by those generating high ROIs which can also be recovered in a reasonable amount of time.

The way that ROI is calculated is as follows. Note that this illustrates the total rate of return: • ### 2. How do you calculate return on investment over multiple years?

Suppose you have an investment that is going to be recovered a few years from now. In that case, you cannot use the total rate of return alone to make a decision on whether you should invest or not. You should use an annualized rate of return to calculate how much you will earn on a yearly basis over the number of years that the investment is outstanding for. The formula goes like this: Where:

•   ROI is the total rate of return
•   n = the number of years outstanding

Let’s use an example. Suppose that we have an investment of \$10,000 that will give us a \$2,000 profit in 3 years. First, let’s calculate the total ROI: Next, let’s calculate the annualized ROI: If that seems confusing, not to worry! The Hardbacon ROI calculator automates all of this for you. Simply plug in your numbers on the left of the screen and you are ready to see both your total rate of return and annualized rate of return on the right.

• ### 3. How do I calculate monthly return on investment?

Once you have the annualized ROI, the monthly ROI is very easy to calculate. Simply divide the annualized ROI by 12. For example, using the same example above, given annualized ROI of 6.27%, monthly ROI would be 6.27% divided by 12, which equals to 0.52%.

• ### 4. How to calculate property return on investment?

If you have bought and sold a property, or are now looking to sell it, the ROI is a good metric to understand the total return you gained from the property. The way to calculate ROI for property is relatively simple, and exactly what we have covered earlier in the article. The formula is as follows: However, there are some nuances to be mindful of. When calculating gain on investment, you want to subtract the fees charged by your attorney and real estate agent, mortgage prepayment penalties (if applicable), and other costs that you may incur during the sale of your home.

Similarly, you also want to add costs like the repairs and improvements that you made to the property to your total cost of investment.

Ultimately, making these changes to the calculator will help you determine your true ROI which is the amount of money that you get to keep over and above your total initial investment and expenditures spent in acquiring the property.

• ### 5. How to calculate return on investment on shares?

If you have bought and sold a stock, or are now looking to sell it, the ROI is a good metric to understand the total return you gained from the investment. The way to calculate ROI for shares is relatively simple, and exactly what we have covered earlier in the article. The formula is as follows: However, there are some nuances to be mindful of. When calculating gain on investment (called capital gains), you want to subtract the fees charged by your brokerage firm and other costs that you may incur during the sale of your share.

You may also want to add income received like dividends on the shares to your gain on investment.

Ultimately, making these changes to the calculator will help you determine your true ROI which is the amount of money that you get to keep over and above your total initial investment spent in acquiring the share.

HOURS
MINUTES
SECONDS

### For a limited time, you can invest in Hardbacon through FrontFundr 