Suppose $20,000 grows to $26,000 over three years. That’s a return on investment of 30%, or 9.14% a year when compounded. If the investment also pays $5,000 a year in cash, the payback period is 4 years. Try your own numbers in the calculator above.
What ROI means
Return on investment sets the gain against the amount you put in. Take the final value, subtract what you invested, and divide by what you invested. Positive means a gain. Negative, a loss. It fits shares, rental property, equipment or a course.
Total return against yearly return
Thirty percent sounds good. Timing matters, though, and a gain that took a decade to arrive is a very different result from one that took twelve months. Earning it in one year beats earning it in ten. The calculator shows the compound yearly return so investments of different lengths can be compared. In the example, 30% over three years works out to about 9.14% a year.
Payback period
Payback is how long the cash from an investment takes to repay it. Divide the amount invested by the yearly cash return. With $20,000 and $5,000 back each year, that’s four years. It says nothing about what happens after the money is back. Read it alongside ROI.
Count all the income
Add dividends, rent or interest received to the final value, then subtract fees, taxes and repair costs. A rental that gains in price but always needs repairs can return less than the price change suggests. Use what actually lands in your account, after every cost that stands between the gross figure and your pocket.
Where ROI falls short
It doesn’t measure risk at all. Two investments with the same return can carry very different odds of losing money, and the return alone won’t tell you which one is which. It also ignores timing. For a project with many payments, tools such as net present value do better.
Comparing options
Same period, same costs. Compare yearly returns first. Then weigh risk, and how easily you could sell if a need came up sooner than planned. A slightly lower return you can reach when needed may be worth more than a higher one that locks you in.
Adjusting for inflation
If prices rose 9% while you earned that 30% over three years, the real return is smaller. Divide the final value by the inflation growth factor and run the calculator again. The adjustment counts most for long holdings, where inflation takes a big share of the gain.
Tax on the gain
Tax applies. In Canada, half of a capital gain is usually added to your income, while interest is fully taxable. A registered account such as a TFSA shelters the gain. Compare after tax, because one pre-tax return can leave you with different amounts.
Weighing choices in Toronto
Local investors often set a rental condo against stocks held in a TFSA or RRSP. The rental brings rent, costs and price change, and the registered account shelters gains from tax. Enter each with the same starting amount and number of years, then compare yearly returns after costs and tax.
Where to go next
Follow long-term growth in the compound interest calculator. For property, open the rental property calculator. Product margins live in the profit margin calculator.
Frequently asked questions
How do I calculate ROI?
Subtract the amount invested from the final value and divide by the amount invested.
What is a good ROI?
It depends on the risk and the time. Compare it with the yearly return of other options.
What is the yearly compound return?
The steady yearly rate that would turn your investment into its final value.
What is the payback period?
The time it takes for the cash you receive to equal what you invested.
Should ROI include fees?
Yes. Subtract fees and taxes for a real figure.
Does ROI measure risk?
No. It shows return only.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.