What Is ROI?
Return on Investment (ROI) measures the profitability of an investment relative to its cost. The formula is: ROI = (Net Profit / Total Cost) × 100. A positive ROI means you made money; negative means a loss. ROI is one of the most widely used metrics for evaluating investment performance.
ROI vs Annualized ROI
Basic ROI does not account for time. A 50% ROI over 1 year is far better than 50% over 10 years. Annualized ROI normalizes returns to a per-year basis, allowing fair comparison. The annualized formula accounts for compounding effects.