Return-on-Investment

Original Size

internal rate of return calculator. An IRR calculation is an annualized ROI calculation when there are multiple cash flows.

If you have multiple investments or withdrawals on different dates then use thisAs a side benefit of this calculator's date accuracy, you can also use it to do date math calculations. That is, it will find the date that is "X" days from the start date or given two dates, it will calculate the number of days between them.

Calendar Tip: When using the calendar, click on the month at the top to list the months, then, if needed, click on the year at the top to list years. Click to pick a year, pick a month and pick a day. Naturally you can scroll through the months and days too. Or you can click on "Today" to quickly select the current date.

If you prefer not using a calendar, single click on a date or use the [Tab] key (or [Shift][Tab]) to select a date. Then, as mentioned, type 8 digits only - no need to type the date part separators. Also, because the date is selected, you do not need to clear the prior date before typing. If mm/dd/yyyy is selected for the date format, for March 15, 2016, type 03152016.

ROI or Return on Investment calculates the percentage gained or lost on an investment.

Enter the "Amount Invested" and the date the investment was made ("Start Date"). Enter the total "Amount Returned" and the end date.

You can change the dates by changing the number of days. Enter a negative number of days to adjust the "Start Date". Or as you change a date the "Number of Days" will update.

The results include the percentage gained or loss on the investment as well as the annualized gain or loss also expressed as a percent. The annualized return can be used to compare one investment with another investment.

Example: If you bought $25,000 worth of your favorite stock on January 2nd 2014 and sold it for $33,000 on June 7th 2015, you would have a gain of $8,000 which is 32%. The annualized gain is 21.5%.

Now, lets say you made a second investment on January 2nd, 2015. This time for $10,000 and you sold it for $11,000 on March 1st, 2015. The gain is only $1,000 or 10%. However, annualized the gain is 82.1%. Ignoring risk (which can be very dangerous), one would generally consider the latter investment to be better than the former.

Saving for college? You may have more time than you think!

A final word about ROI/ROR financial calculators — because two different calculators may use different equations, don't compare the results from one ROI calculator for one investment with results from another calculator for a different investment. Use the same calculator to compare two different investments.

Please tell me how you use this calculator. Are you using it personally or professionally? What feature is important to you? If it didn't meet your needs, why? Your feedback will help me make improvements. Complete sentences aren't necessary! :)

How long would it take to earn 400% ROI at 2% per year interest earnings?

A: about 81.25 years.

I had to think about this and to test some things. If you want to try it yourself, I got the answer using the Savings Calculator since it will solve for term. I entered $1,000 for the starting amount, and 2% interest rate, 0 for number of periods since that’s what we are solving for and $5,000 as the ending value (Goal Amount). The catch is, I had to enter 0.01 as a periodic investment amount since if the user enters a 0, the calculator will try to solve for it. For dates I used March 1, 2017 and March 1, 2018 and annual frequencies.

That should get you started.

I tried Excel and it would not solve this problem with its built in financial functions. It errored out.

I have plans on the proverbial drawing board for a calculator that would solve for this and not force a user to enter that crazy penny. Also you’ll notice I said 81.25 years. If you look at the schedule after 81 years, the value is not quite 5,000.

The equation for compound interest is simple: M = (1+r/n)^(nt) where M is your earnings multiple, r is your decimal interest rate, n is the number of interest payments or “compoundings” per year and t is the number of years.

For your example, M would be 5 (400% growth is 5x your investment), r is 0.02. Let’s say you only get one interest payment a month, that makes n = 1 and you want to find t. The “^” symbol denotes a power operation (e.g x^2 is ” x squared”).

Now you need to know how to handle logarithmic math to solve for t:

5 = (1+0.02)^t

log(5) = t log(1.02)

t = log(5)/log(1.02)

t = 81.274 years

You can now solve for any part of the equation. If you know t and r, you can solve for M. If you know M and t, you can solve for r…and not be dependent on someones solver.

Hi Karl

I want to be able to work out a return on a investment for a 12 month period.

Opening Balance, less Income Received, less withdrawals, less fees, Closing Balance.

I want to be able to calculate the rate of return on the portfolio.

Could you please give me a formula.

Thankyou

Hi Lynne, I can’t give you a formula for this, for several reasons, one of them is it’s quite involved. The calculation you want to do is known as an internal rate of return calculation (IRR) and there is no equation in a traditional sense. The way computers solve it, is by trial and error.

On the other hand, if you want to know the answer, there is an IRR calculator on this site that will easily solve this problem. One suggestion, if you try the calculator, before you enter all the inputs, try a few short examples so you get the hang of it. That is when to enter a negative or positive value. Just a suggestion.

Hi Karl

quick Q re ROI please..

If my Gain % is 17.4347 over a 5 yr period how come annualized ROI = 3.2646% rather than 3.48694%? (i.e. gain % / 5)

thanks

Jimmy

This is due to the time value of money and reinvestment. Looking at it from another perspective, what it is telling you is to earn the dollar return you made, you only have to get a return of 3.2646% rather than 3.48694% because the money earned in each year is reinvested i.e. compounding. I realize there is no actual cash generated over the 5 years, but the annualized rate assumes an annual return and that it is reinvested for 5 years. That’s what an annualized return means.

Hi Karl-

Couldn’t figure out the inputs on the calc for an annualized return question for a real estate aqusition.

Initial investment = $10,000,000

Payments received annually from rent = $441,600

What is the annual rate of return?

Thanks,

David

Hi David, this calculator is not designed for for ROI when there’s also additional cash flows. Please use the IRR Calculator. This calculates an annualized rate of return and allows the user to enter cash flows.

If all your cash flows are regular, which I gather they are, you could also use the Ultimate Financial Calculator. Scroll down the page and see tutorial #22 about ROI. This will save you from entering individual cash flows.

Thanks karl! I’ll give it a try…

David

Hi Karl,

I am to get this calculator for my website. How do I go about that ?

Thanks,

Jonathan

Hi, I’ve not created a plugin for this calculator or the compound interest calculator you asked about. I’m not sure when or even if that will happen. I have a lot of new content I want to create for this site.

Ok Thanks

Hi Karl,

I need help understanding a potential offer I received.

I bought a duplex 3 months ago for $25,000 cash

Was approached by a buyer with the following terms:

Purchase Price: $39,900

Interest: 12%

Down Payment: $7500

Term: 20 yrs.

Is my annualized return on investment 6.6%

Hello. Understood. You’re probably facing an issue figuring this out because this calculator is not design for what you want. The ROI calculator is designed to calculate ROI when there is a single investment amount.

For what you want to do, please use the IRR Calculator. IRR is an annualized rate of return on a cash flow. When you look at the calculator, your initial investment will be entered as -25000.00. Your first cash flow will be 7500 and then 240 cash flows equal to the payment amount on the date due.

Since there are a lot of cash flows (payments) to enter, you could also use the Ultimate Financial Calculator. It may take a while to get up to speed on this one, but the data entry is easier / faster. Scroll down the page and look at the "ROI" tutorial.

Once you try either calculator, and if you have questions, feel free to ask them.

Let me know how you make out.

Hi Karl,

What is the difference between Annualized ROI and Compounded Annual Growth Rate (CAGR)?

Good question. There is no legal definition for either term so it all comes down to individual implementation if you are asking from the point of view of a calculator. That is, two calculators performing the exact same math may refer to one result as the CAGR and the other calculator may refer to the result as ROI. Further, two different calculators that call their calculated result by the same term, can have different answers for the exact same inputs.

Confusing, right?

The point of the calculation isn’t so much the actual calculated value but rather the point is to give an investor a way to compare two or more different investments. And what’s important to note is for the reasons mentioned above, when comparing investments, use the same calculator.

Why the different results? And why is it ok?

Largely it comes down to how the periods are counted. This calculator for example, counts the actual number of days. Other calculators may calculate the number of periods the money is invested for, such as the number of months. Those calculators may or may not consider fractional months. (Do they let the user enter 22.6 months, for example?) Regardless, if you use this calculator and the term is 365 days and you compare it with another calculator and the term is 12 months, the result is going to be slightly different. And neither are wrong.

Hope this helps.

Hi,

I would like to find out how the calculation for return on investment is done if the investment is done on a monthly basis for a given period of time and not as a one time investment.

You can use the Internal Rate of Return (IRR) calculator for that. IRR is an ROI calculation for a series of investments and/or withdrawals.

Hi Karl,

Thank you for your response.

The IRR however did not help in the calculation as expected.

A scenario could be used to explain my question:

I investment a fund monthly of a sum of 200.00 for the past 2 years and 10 months.

My total investment in the fund is 6800 and I am being told the interest on my investment is 2200.

I want to compare the return on this investment to others I have and I am of the view that since the investment was done monthly, there should be more of a cumulative formula for calculating the ROI since the payment were done on a monthly bases.

Thank you

The IRR calculator is designed for exactly this situation – comparing investments.

For your example, there is only one thing missing that I can see. Rather than being concerned with the interest (the 2,200), what you need to have to use the calculator is the current market value of the investment or it’s balance, whatever you want to call it. Then you would enter the $200 for each month (use the add series feature) as negative numbers on the dates they were made. Then on the date you want the IRR/ROI for, enter the value of the investment as a positive number. The interest you’ve earned is included in the balance. If you made a withdrawal during this time, then the withdrawal is a positive number.

Please give that a try and let me know how you make out. If you have any other questions about the IRR calculator itself, please post them on that page so that others can benefit from the discussion.

Thanks.

Hello Karl,

The IRR explanation you gave worked just perfect.

From the calculation, I made a gross return of 32.455% and an IRR of 20.299%.

Thanks immensely for your help.

Your’re welcome. Glad it worked for you Jerry. And nice returns! The real benefit will be when you do an analysis on the other investment options and compare them. And fyi, when comparing returns, always use the same calculator as there are variations in how a ROI can be calculated. There are more detail notes about this on the IRR page.