Return on investment (ROI) is the profit or loss on an investment expressed as a percentage of what you put in. It answers a simple question: for every dollar I invested, how much did I get back?
ROI = (final value − amount invested) ÷ amount invested × 100%. Example (illustrative): you buy $2,000 of a stock and later sell it for $2,500. Your ROI is (2,500 − 2,000) ÷ 2,000 = +25%. If instead it fell to $1,600, your ROI is (1,600 − 2,000) ÷ 2,000 = −20%.
ROI on its own ignores two things that matter enormously. First, TIME: a +25% return earned over three months is very different from +25% earned over ten years — which is why longer comparisons use an annualized figure. Second, RISK: a +25% return taken with a position that could have lost half its value is not comparable to a +25% return from something far safer. Always read ROI alongside how long it took and how much risk was on the table.
Subtract what you invested from what it is now worth, divide by what you invested, and multiply by 100 to get a percentage. A $2,000 investment now worth $2,500 has an ROI of +25%.
Because ROI ignores time and risk. A +25% return over ten years is modest; the same +25% in three months is strong. And a return earned with high risk of a large loss is not comparable to the same return earned safely.
Annualized ROI restates a return as an equivalent yearly rate, so investments held for different lengths of time can be compared on the same footing.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.