Investment
Annualized ROI
Converts a multi-year return onto a per-year equivalent so opportunities with different horizons can be ranked directly. Only valid when the interim income can be assumed to compound at the same rate.
The Formula
Annualized ROI = (1 + ROI)^(1/t) - 1
Converts a multi-year return onto a per-year equivalent so opportunities with different horizons can be ranked directly. Only valid when the interim income can be assumed to compound at the same rate.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| t | Holding period in years | years | Fractions allowed: an eleven-month hold is 0.917 years. |
What Each Symbol Means
tyears
Holding period in years
Fractions allowed: an eleven-month hold is 0.917 years.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate roi page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate ROI, filed under Finance. Every number the guide produces comes from substituting into this one line.