# How to Calculate a Return on Investment

Calculating your return on investment on assets like stocks and certificates of deposit is actually a fairly easy process. The equation below shows how simple the ROI can be calculated, just by plugging in a few numbers.

**ROI = (Total Gained – Cost) / Cost**

Using the equation above, we can calculate the return on investment for a stock that is paying a quarterly dividend. If we purchased 25 shares of company *ABC* at $20 per share, our overall cost would equal $500.

Let’s assume that *ABC* is a **dividend paying stock** that pays $.25 each quarter to its shareholders for every 1 share they own. In order to calculate the **total gained**, we need to convert the quarterly dividend payments into an annual amount, which would equal $1.00 per share.

Since we owned 25 shares of the company, our *income gained* would equal $25 (25 shares * $1.00). Calculating the amount of dividend income is only the first part of figuring out the *total gained*. We also need to account for the current **market value** of 25 shares of stock.

Let’s assume that the stock saw a modest increase since our purchase and is now trading at $20.50 per share. Since we own 25 shares of the stock, our total estimated value of the position is $512.50. Adding in the dividend income that was earned over the past 12 months and our **total gained** on the investment equals **$537.50**

Our overall cost for owning the stock was $500. The investment cost and the investment gained can then be plugged into the equation above to calculate the true return on investment for owning the stock.

**ROI = ($537.50 – $500) / $500**

After crunching the numbers, we have calculated a **7.5% ROI** from owning 25 shares of *ABC* over the past year.

For the purposes of this example, we won’t include any commission costs or fees.

### Final Thoughts

The example above is a simply way to calculate the return on investment for a dividend stock. The equation can also be used for other income generating assets like savings accounts, certificates of deposit, and even real estate.