ROI (Return on Investment) is one of the simplest and most versatile financial metrics. It tells us how much we earned — or lost — relative to the capital invested. It is used by stock investors, business owners, marketing specialists, and property managers alike.
The ROI Formula
The basic formula:
- ROI = (Investment Gain − Investment Cost) / Investment Cost × 100%
Or equivalently:
- ROI = (Final Value − Initial Value) / Initial Value × 100%
ROI Calculation Examples
Stock Market Investment
You bought shares for PLN 10,000. A year later you sold them for PLN 12,500 and received PLN 300 in dividends.
- Total gain: (12,500 + 300) − 10,000 = PLN 2,800
- ROI = 2,800 / 10,000 × 100% = 28%
Rental Property
You bought a flat for PLN 400,000 (PLN 80,000 down payment + PLN 320,000 mortgage). Annual rental income: PLN 24,000; annual costs (mortgage, tax, maintenance): PLN 22,000. Annual net profit: PLN 2,000. Property value rose to PLN 440,000.
- Total gain: 2,000 (rental) + 40,000 (capital gain) = PLN 42,000
- ROI on down payment: 42,000 / 80,000 × 100% = 52.5% (leverage effect)
Marketing Campaign
A company spent PLN 5,000 on Google Ads. Revenue generated: PLN 18,000; gross margin 30% → gross profit PLN 5,400.
- ROI = (5,400 − 5,000) / 5,000 × 100% = 8%
ROI and Time — CAGR and Annualised ROI
Basic ROI ignores the duration of the investment. An ROI of 50% over 5 years is far less attractive than 50% in 1 year. This is why CAGR (Compound Annual Growth Rate) is used:
- CAGR = (Final Value / Initial Value)^(1/n) − 1
Where n = number of years. For an ROI of 50% over 5 years: CAGR = (1.50)^(1/5) − 1 ≈ 8.45% per year.
Limitations of ROI
ROI is a useful but simplified tool:
- It ignores risk — two investments with a 20% ROI can have dramatically different risk profiles.
- It does not account for time (use CAGR or IRR for that).
- It can be manipulated by choosing the measurement period or defining "cost" selectively.
Online ROI Calculator
Our ROI calculator computes the return on investment for various scenarios — stocks, property, deposits, and marketing campaigns. You can also compare multiple investments and check the CAGR for any chosen time horizon.