The simplest ROI formula divides the gains earned on an investment by its initial cost, according to Investopedia. Someone who invests $10,000 and earns $1,000 has a return on investment, known as ROI, of 10 percent because $1,000 is 10 percent of $10,000.Continue Reading
Simple ROI calculations analyze a return for an undefined period of time, says Finance Formulas, and do not factor in the time elapsed to realize a return. Business Insider advises analyzing returns to determine the rate of return for an annual period to better understand gains. For example, a $10,000 investment that earned $1,000 over the course of 10 years would earn an annualized return of $100 per year, or 1 percent, whereas a $10,000 investment that earned $1,000 over the course of six months would earn an annualized return of $2,000 per year, or 20 percent.
More complicated ROI calculations might include ongoing costs of investment, such as real estate taxes or maintenance costs paid on an investment property. Rental Property Reporter, a resource for landlords, operates a real estate ROI calculator on its website that factors in costs of ownership and provides both an annualized rate of return and a prediction for annual cash flow as part of its calculations.Learn more about Financial Calculations