What is "rate of return"

In finance, return is a profit on an investment. It comprises any change in value and interest or dividends or other such cash flows which the investor receives from the investment. It may be measured either in absolute terms (e.g., dollars) or as a percentage of the amount invested. The latter is also called the holding period return.

A loss instead of a profit is described as a negative return.

Rate of return is a profit on an investment over a period of time, expressed as a proportion of the original investment. The time period is typically a year, in which case the rate of return is referred to as annual return.

To compare returns over time periods of different lengths on an equal basis, it is useful to convert each return into an annual equivalent rate of return, or annualised return. This conversion process is called annualisation, described below.

Return on investment (ROI) is return per dollar invested. It is a measure of investment performance, as opposed to size (c.f. return on equity, return on assets, return on capital employed).