ROI vs CAGR
ROI = (Final - Initial) / Initial x 100. A 50% ROI means you gained 50% of your investment.
What Is ROI
ROI = (Final - Initial) / Initial x 100. A 50% ROI means you gained 50% of your investment.
What Is CAGR
CAGR shows annualized return. Useful for comparing investments with different timeframes.
A practical method
Return on investment (ROI) measures total gain or loss relative to the starting amount. Compound annual growth rate (CAGR) converts the beginning and ending values into a smoothed annual rate over a stated number of years. ROI answers 'how much in total'; CAGR answers 'what constant annual rate would connect the endpoints.'
- Calculate total ROI: Use (ending value − starting value − relevant net costs) ÷ starting value, then express the result as a percentage.
- Measure the exact period: CAGR needs the holding period in years; partial years should be represented consistently.
- Calculate CAGR: Use (ending value ÷ starting value)^(1 ÷ years) − 1 when there are no intervening cash flows.
- Interpret both measures: ROI does not annualize; CAGR smooths volatility and does not show the path taken between endpoints.
Worked example
An amount grows from $10,000 to $14,000 over three years. ROI is 40%. CAGR is (14,000 ÷ 10,000)^(1/3) − 1, or about 11.87% per year. Neither result shows whether the value rose steadily or fell sharply during the period.
Checks, edge cases, and common mistakes
- Include fees, taxes, and cash flows consistently in the comparison.
- Do not use basic CAGR when contributions or withdrawals occur during the period.
- Do not present CAGR as a guaranteed future return.
- Compare investments with similar risk, liquidity, and time horizons, not percentages alone.
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Desmarto Editorial Team
The Desmarto team creates accurate, well-researched content about time, date, and work-hour calculations. Every guide is reviewed for precision and clarity.
Quick reference
Frequently asked questions
What is the difference between ROI and CAGR?
ROI shows total return. CAGR shows average annual return over time.