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How To Calculate Return On Investment In Excel With Examples

Friday, November 21st 2025. | Excel Templates

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Calculating Return on Investment (ROI) in Excel

Return on Investment (ROI) is a fundamental financial metric used to evaluate the profitability of an investment relative to its cost. It helps you understand how well an investment has performed and compare different investment opportunities. Excel is a powerful tool for calculating and analyzing ROI, offering various functions and features to streamline the process.

Basic ROI Formula

The basic formula for calculating ROI is:

ROI = (Net Profit / Cost of Investment) * 100

Where:

Net Profit is the total gain from the investment after deducting all expenses.
Cost of Investment is the total amount of money invested.

Calculating Basic ROI in Excel: Example 1

Let’s say you invested $10,000 in a stock, and after one year, you sold it for $12,000. Your net profit is $12,000 – $10,000 = $2,000.

Here’s how you would calculate the ROI in Excel:

Open a new Excel spreadsheet.
In cell A1, enter “Cost of Investment:”.
In cell B1, enter “$10,000”.
In cell A2, enter “Net Profit:”.
In cell B2, enter “$2,000”.
In cell A3, enter “ROI:”.
In cell B3, enter the following formula: =(B2/B1)*100
Format cell B3 as a percentage by clicking the “%” button in the “Number” group on the “Home” tab.

Cell B3 will now display the ROI as “20.00%”. This means your investment generated a 20% return.

Accounting for Additional Costs: Example 2

Sometimes, investments involve additional costs, such as brokerage fees, transaction fees, or maintenance expenses. Let’s consider a real estate investment.

Open a new Excel spreadsheet.
In cell A1, enter “Cost of Investment:”.
In cell B1, enter “$200,000”.
In cell A2, enter “Rental Income:”.
In cell B2, enter “$20,000”.
In cell A3, enter “Property Taxes:”.
In cell B3, enter “$5,000”.
In cell A4, enter “Maintenance:”.
In cell B4, enter “$2,000”.
In cell A5, enter “Net Profit:”.
In cell B5, enter the following formula: =B2-B3-B4 This calculates the net profit by subtracting the expenses from the rental income.
In cell A6, enter “ROI:”.
In cell B6, enter the following formula: =(B5/B1)*100
Format cell B6 as a percentage.

Cell B6 will display the ROI as “6.50%”. This shows that despite the rental income, the expenses reduced the overall return to 6.5%.

Annualized ROI: Example 3

When comparing investments held for different periods, it’s important to calculate the annualized ROI to provide a standardized comparison. Annualized ROI represents the average yearly return on an investment.

Let’s say you invested $5,000 in a mutual fund, and after 3 years, it’s worth $6,000. You want to calculate the annualized ROI.

Open a new Excel spreadsheet.
In cell A1, enter “Initial Investment:”.
In cell B1, enter “$5,000”.
In cell A2, enter “Final Value:”.
In cell B2, enter “$6,000”.
In cell A3, enter “Number of Years:”.
In cell B3, enter “3”.
In cell A4, enter “Annualized ROI:”.
In cell B4, enter the following formula: =((B2/B1)^(1/B3)-1)*100
Format cell B4 as a percentage.

Cell B4 will display the Annualized ROI as “6.27%”. The formula works by first calculating the total return (B2/B1), then raising it to the power of (1/B3) to find the average return per year. Finally, it subtracts 1 and multiplies by 100 to express the result as a percentage.

Using the IRR (Internal Rate of Return) Function: Example 4

The Internal Rate of Return (IRR) is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. In simpler terms, it’s the rate at which an investment breaks even. Excel’s IRR function is very useful for investments with varying cash flows over time.

Imagine you invest $10,000 in a business. In year 1, you receive $3,000 back, in year 2, you receive $4,000 back, and in year 3, you receive $5,000 back.

Open a new Excel spreadsheet.
In cell A1, enter “Year 0”.
In cell B1, enter “-$10,000”. (The initial investment is a cash outflow, hence the negative sign.)
In cell A2, enter “Year 1”.
In cell B2, enter “$3,000”.
In cell A3, enter “Year 2”.
In cell B3, enter “$4,000”.
In cell A4, enter “Year 3”.
In cell B4, enter “$5,000”.
In cell A5, enter “IRR:”.
In cell B5, enter the following formula: =IRR(B1:B4)
Format cell B5 as a percentage.

Cell B5 will display the IRR as approximately “7.93%”. This is the discount rate that would make the net present value of these cash flows equal to zero. It indicates the expected compound annual rate of return on the investment.

Comparing Multiple Investments using ROI: Example 5

ROI becomes particularly valuable when comparing different investment options. Let’s say you have two potential investments:

Investment A: Costs $15,000 and is expected to generate a net profit of $4,000 after one year.
Investment B: Costs $25,000 and is expected to generate a net profit of $6,000 after one year.

Open a new Excel spreadsheet.
In cell A1, enter “Investment”.
In cell B1, enter “Cost”.
In cell C1, enter “Net Profit”.
In cell D1, enter “ROI”.
In cell A2, enter “Investment A”.
In cell B2, enter “$15,000”.
In cell C2, enter “$4,000”.
In cell D2, enter the following formula: =(C2/B2)*100
In cell A3, enter “Investment B”.
In cell B3, enter “$25,000”.
In cell C3, enter “$6,000”.
In cell D3, enter the following formula: =(C3/B3)*100
Format cells D2 and D3 as percentages.

Excel will calculate the ROI for each investment:

Investment A: 26.67%
Investment B: 24.00%

In this scenario, Investment A has a higher ROI (26.67%) than Investment B (24.00%), suggesting that it’s the more profitable investment relative to its cost, even though Investment B generates a higher net profit in absolute dollar terms.

Limitations of ROI

While ROI is a useful metric, it has some limitations:

Doesn’t consider the time value of money: ROI treats all dollars equally, regardless of when they are received. This can be misleading when comparing investments with different durations. NPV and IRR are better for accounting for the time value of money.
Can be manipulated: By strategically allocating costs or revenues, companies can artificially inflate or deflate the ROI.
Doesn’t account for risk: ROI doesn’t reflect the level of risk associated with an investment. A higher ROI investment might be riskier than a lower ROI investment.

Conclusion

Calculating ROI in Excel is a relatively straightforward process that provides valuable insights into the profitability of investments. By understanding the basic ROI formula, accounting for additional costs, annualizing returns, and utilizing functions like IRR, you can effectively analyze and compare different investment opportunities. Remember to be aware of the limitations of ROI and consider other financial metrics in conjunction with ROI for a more comprehensive investment analysis.

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