How to Calculate a Return on an Investment With a Formula

How to Calculate a Return on an Investment With a Formula
Calculating return on investment using a formula

Step 1

Determine the gain on the investment and the cost of the investment. For example, an investment cost an investor $500 and the investment was worth $520 at the end of the year. In business, an analysis of investment costs and gains are presented on the firm's financial statements, usually on the income statement and balance sheet.

Step 2

Subtract the investment's ending value from the cost of the investment to determine net profit. In the example, $520 minus $500 equals $20.

Step 3

Divide the net profit by the cost of the investment. In the example, $20 divided by $500 equals 0.04, or a 4 percent return on investment.