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ROI Calculator for Canadian Investments

WOWA Simply Know Your Options

Inputs

Amount Invested

$

Amount Returned

$

Length of Investment (Optional)

MonthsYears

Results

50%

ROI (RETURN ON INVESTMENT)

Annualized ROI

8.45%

Investment Gain

$5,000

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This ROI calculator is designed to calculate the return on investment (ROI) for any Canadian investment. To use the ROI calculator, enter your initial investment amount and the final value of the investment. This gives you your ROI. To calculate your annualized ROI, simply enter the length of the investment in addition to the initial and final investment amounts. This then calculates the annual return for each year of the investment.

This page will take a look at ROI, or return on investment, in Canada. We'll explore what ROI is, how it is calculated, and some of the ways it can be measured. Then, we’ll go over some alternatives to ROI that might be a better fit for certain situations.

Annualized ROI is a good measure of profitability for simple situations when you purchase an investment and sell it on a future date. For more complicated situations where there can be many cash inflows and outflows relating to an investment, one should use the internal rate of return as a measure of profitability.

ROI stands for return on investment, and it measures the amount that an investment returns or the final value of an investment relative to the investment's cost. It is usually expressed as a percentage or a ratio. A positive value means that the investment has generated a return greater than its cost, while a negative value indicates that the investment incurred loss.

ROI can be used to evaluate a wide variety of investments, including stocks, bonds, real estate, and businesses. ROI is also a popular metric for evaluating the performance of marketing campaigns and other initiatives. In digital advertising, another term for ROI is return on ad spend (ROAS).

A limitation of ROI is that it only considers financial measures and does not take into account other factors that may be important, such as the riskiness of the investment. In order to consider risk, you'll want to use a risk-adjusted return ratio.

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The most common way to calculate return on investment is to take the difference between the initial investment and the final value of the investment, and then divide that by the initial investment.

For example, if you invested $100 in a stock and it went up to $110, your ROI would be (110-100)/100, or 10%.

ROI can also be used to calculate how much money you made from an investment in relation to how much you spent. For example, if you spent $100 on a new marketing campaign and it generated $300 in profit, your ROI would be 200%.

Calculating annualized ROI is slightly different, as it involves the number of years the investment was held for. Annualized ROI gives you the annual return for the investment, which makes it a better metric to compare between different investments, especially those held for different lengths of time. That’s because investments might be held for different periods of time.

Annualized ROI can be calculated using the simple formula,

where P is the initial investment, F is the final value of the investment, and n is the number of years the investment is held.

For example, let’s say you have a stock that you purchased for $10,000. After three years, it’s worth $11,000, and you receive $500 in dividends. Then, based on the annualized ROI calculation, your annualized ROI would be [($11,500/$10,000)^(1/3)] - 1] = 4.8%. Meanwhile, the simple ROI will be 15%. The table below shows how the annual ROI can differ based on the length of investment, even when the ROI is the same.

Return on Ad Spend (ROAS) is a key metric that ecommerce businesses use to measure the success of their digital marketing campaigns. Both ROAS and ROI are measures of profitability, but they differ in how they are calculated.

ROAS is a measure of how much revenue is generated for every dollar spent on advertising. ROI, on the other hand, looks at the overall profitability of a campaign, taking into account both ad spend and other associated costs.

To calculate ROAS, simply divide total revenue associated with the campaign by the total ad spend:

For example, if an ecommerce business spends $100 on Google Ads and generates $5,000 in revenue from those ads, their ROAS would be 5:1, or $5 of revenue for every $1 spent.

On the other hand, ROI will also take into account other costs for a business. For example, a business will need to subtract the cost of their product, and not consider just the cost of the ad campaign.

Source: Nielsen (2004-2015)

Did you know that the average annual rate of return for Canadian equities over the past 60 years was 9.3%? That's based on data from Edward Jones for the S&P/TSX Composite Index (TSX) from 1960 to 2020. However, this figure can change dramatically based on the time frame chosen. For example, the annual rate of return for the TSX from 1956 to 2022 was 5.7%. That’s significantly different from the 9.3% annual rate of return from 1960 to 2020. Even so, the returns of Canadian equities have historically outperformed other Canadian asset classes, such as bonds.

Edward Jones predicts the long-term average return for Canadian equities to be from 6% to 7.5%, and fixed-income to be from 3% to 3.5%. The table below shows their rate of return predictions in Canada.

Source: Edward Jones

Calculating ROI on Canadian rental properties is slightly different from a regular ROI calculation. That's because you'll need to account for ongoing costs, such as rental mortgage payments, repairs, and maintenance. Your rental income might vary as well based on vacancy rates. You can follow the steps below to calculate your ROI on a rental property.

Step 1: Start by adding up all your costs associated with the property, including purchase price, closing costs, and any renovations or repairs.

Step 2: Next, calculate your expenses for the next year, such as monthly mortgage payments and ongoing costs like insurance, property taxes, and utilities.

Step 3: Subtract your total annual expenses calculated above from your annual rental income. This will give you your net rental income.

Step 4: To get your ROI, you'll then divide your net rental income by your total cost of investment.

Another way to calculate the profitability of a rental property is to calculate the cap rate. The cap rate excludes the costs of buying, selling, or financing the rental property.

Using a mortgage loan as financing reduces your initial investment cost. That’s because you don’t need to use as much cash to own the property as you would if you purchased it in full with cash.

For example, let's say you buy a rental property for $500,000 with a 20% down payment of $100,000. Closing costs added up to $10,000, and you make $20,000 worth of repairs. This totals $130,000 as your initial investment cost.

You spend $1,500 per month on mortgage payments, insurance, taxes, and utilities, which adds up to $18,000 per year. You collected $2,500 per month in rent, or $30,000 per year. Your annual net rental income is $12,000 per year.

Your ROI will then be 9.2%, based on this calculation:

If you purchase the property in full using cash, you will need to account for that as part of your initial investment cost. For example, let's say you buy a rental property for $500,000. Closing costs added up to $10,000, and you make $20,000 worth of repairs. This totals $530,000 as your initial investment cost.

You spend $500 per month on insurance, taxes, and utilities, which adds up to $6,000 per year. You collected $2,500 per month in rent, or $30,000 per year. Your annual net rental income is $24,000 per year.

Your ROI will then be 4.5%, based on this calculation:

If you financed your rental property purchase, you’ll need to make mortgage payments. Since a portion of your mortgage payments goes towards your principal, you’ll be building up your home equity with each payment. You can consider the equity that you gain when calculating your rental property’s ROI.

To do this, calculate the principal paid down for the time period that you are looking for. In the previous example, let’s say that of the $1,500 monthly expenses, $750 went towards the mortgage principal and rest went towards interest, insurance, taxes, and utilities. This means you are building $750 per month in equity, or $9,000 per year. This increases your rental property’s ROI to 16.1%. You will receive this built-up equity back once you sell the home.