You turned €1,000 into €1,300. Good investment? You can't actually answer that yet — not until you know how long it took and what else your money could have done. ROI (Return on Investment) is the number that starts the conversation: a single percentage that says how much you gained relative to what you put in. It's the most-used metric in business and personal finance, and also one of the most misused. Here's how to calculate it correctly — and where it quietly lies to you.

The ROI formula

ROI = (Net Profit ÷ Cost of Investment) × 100

Or equivalently, using start and end values:

ROI = ((Final Value − Initial Value) ÷ Initial Value) × 100

The result is a percentage. Positive means you made money, negative means you lost it, and zero means you broke even.

A worked example

You buy €1,000 of stock and later sell it for €1,300.

  • Net profit = 1,300 − 1,000 = €300

  • ROI = (300 ÷ 1,000) × 100 = 30%

Simple enough. But "cost of investment" should include everything you spent, not just the purchase price. Add a €20 trading fee on each end (€40 total) and your real net profit is €260, giving an ROI of 26%. Ignoring costs is the fastest way to overstate a return. The ROI calculator lets you fold fees straight into the cost so the percentage is honest.

The flaw: ROI ignores time

Here's the trap. Two investments both return 30%:

  • Investment A: 30% in 1 year

  • Investment B: 30% in 5 years

Basic ROI calls these identical. They are nowhere near identical — A earns 30% every year, B earns about 5.4% a year. To compare fairly, you need annualized ROI:

Annualized ROI = ((1 + ROI)^(1 ÷ years) − 1) × 100

For Investment B: (1.30)^(1/5) − 1 ≈ 0.0539, or 5.4% per year. Now the comparison is real, and A is the clear winner. Whenever two investments span different time periods, annualize before you judge — otherwise you're comparing sprints to marathons.

ROI vs compound growth

Annualized ROI connects directly to compounding. That 5.4% per year is exactly the rate that, compounded over 5 years, turns €1,000 into €1,300. If you want to project forward instead of measuring backward — "what will this become if it keeps returning X%?" — that's a job for the compound interest calculator, and our compound interest guide explains why time in the market does the heavy lifting. For a broader forward projection with regular contributions, the investment calculator handles it.

What ROI still leaves out

Even annualized, ROI is silent on two things that matter enormously:

  • Risk. A 15% return from government bonds and a 15% return from a crypto punt are not the same investment, but ROI reports them identically. A high ROI earned by taking wild risk isn't obviously "better."

  • Opportunity cost. A 6% return looks fine until you notice a comparable, safer option paid 8%. ROI only measures what you did, not what you passed up.

Treat ROI as the opening number, not the verdict.

Where ROI shows up beyond the stock market

  • Business decisions: "Should we spend €10,000 on this?" ROI on the expected extra profit answers it. When you also need the sales volume required to break even first, reach for the break-even calculator.

  • Marketing: return on ad spend is just ROI on a campaign.

  • Personal net worth: tracking the ROI of your holdings over time feeds directly into your net worth trajectory.

The bottom line

ROI is dead simple — profit divided by cost, times 100 — and that simplicity is both why it's everywhere and why it misleads. Always include your full costs, always annualize when time periods differ, and never let a headline ROI stand in for risk. Run your numbers through the ROI calculator, then use compounding tools to look forward. Measured properly, it's the fastest way to know whether your money actually worked.