Calculated from the sample figures using the displayed formula.
What is the return on investment formula?
(Gain from investment − Cost of investment) ÷ Cost of investmentReturn on investment compares net gain with the investment cost.
What do the inputs mean?
- Value received
- The value entered for value received. Keep its period and units consistent with the other inputs.
- Investment cost
- The value entered for investment cost. Keep its period and units consistent with the other inputs.
How to calculate it step by step
- Define the decision.
Write down what the result will help you compare or decide. - Collect matching inputs.
Use figures from the same period and apply the definitions shown on this page. - Apply the formula.
(Gain from investment − Cost of investment) ÷ Cost of investment. - Check the units.
Confirm whether the result is a currency amount, percentage, number of periods or ratio. - Test a second case.
Change one assumption at a time to see what drives the result.
Worked example
Using the sample figures in the calculator, the result is 45%. Change one figure at a time and recalculate to see which assumption has the greatest effect. A spreadsheet should return the same result when it uses the same formula, units and timing.
When should you use return on investment formula?
Use it for a clearly bounded investment with consistent included costs and benefits.
Limitations and common mistakes
Simple ROI ignores time. Use annualized return, NPV or IRR when timing matters.
Do not mix annual figures with monthly figures, ending balances with averages, or percentages with whole numbers. Record the definition used so another person can reproduce the result.
Frequently asked questions
What is return on investment formula?
Return on investment compares net gain with the investment cost.
How should I use return on investment formula?
Use the formula only after matching every input to the same period, unit and definition. Then compare the result with a worked example and the decision you are trying to make.
What is the most common mistake with return on investment formula?
Simple ROI ignores time. Use annualized return, NPV or IRR when timing matters.
Can I calculate return on investment formula in a spreadsheet?
Yes. Reproduce the displayed equation with separate cells for each input, keep percentages as decimals, and test the spreadsheet against the worked example before replacing the sample figures.
Sources and methodology
This page uses the Beginners’ Guide to Financial Statements for the underlying financial or reporting context. Spreadsheet-related behavior is checked against Microsoft’s financial-function documentation. Examples are illustrative and use the formula displayed on the page.