ROI (Return on Investment) — What Is It?

Definition

ROI (Return on Investment) — a profitability indicator measuring the percentage return on invested capital. It shows how much you earned (or lost) relative to the expenditure incurred.

Formula

ROI = (Net profit / Investment cost) × 100%

Where net profit = revenue from investment − investment cost.

Example

You invested 10,000 PLN in an ETF. After a year, the portfolio is worth 11,200 PLN.

ROI = (11,200 − 10,000) / 10,000 × 100% = 12%

ROI advantages

• Simplicity — easy to calculate and understand
• Universality — works for stocks, real estate, business, education
• Comparability — allows comparing different investments in one measure

Limitations

• Doesn't account for time — 20% ROI in 1 year is different from 20% ROI in 5 years. For multi-year comparisons, CAGR is better
• Ignores risk — two investments with the same ROI can have completely different risk profiles
• Depends on cost definition — different people may calculate "investment costs" differently

ROI vs. other indicators

• CAGR (Compound Annual Growth Rate) — annualized ROI, better for long-term comparisons
• IRR (Internal Rate of Return) — accounts for time and different cash flows
• Yield — current profitability (e.g., bonds), doesn't account for price changes

How Freenance can help

Freenance automatically calculates ROI of your investments — both total and annualized (CAGR). You see the return on each portfolio position without needing manual calculations.

👉 Track ROI with Freenance — freenance.io