Calculating Stock
Returns
© Copyright 2017 Fervent | All Rights Reserved
What is Return?
Return refers to the amount of money you
make from your investment, expressed in
% terms.
© Copyright, Fervent | All Rights Reserved
Consider an example...
Imagine you buy stock in Facebook (FB)
for $160 and sell it for $192.73
What is your profit & what is your return?
© Copyright, Fervent | All Rights Reserved
Profit vs. Return
Profit shows you the $ / £ you earn from
an investment.
Return (“!”) shows you the same
information in % terms.
© Copyright, Fervent | All Rights Reserved
Profit on your investment
Profit = Selling Price – Purchase Price
Profit = !"#$ − !"
Profit = $192.73 - $160
Profit = $32.73
© Copyright, Fervent | All Rights Reserved
Return on your investment
#$%& − #$
!=
#$ #$%& = Selling Price
$192.73 − $160 #$ = Purchase Price
!=
$160 ! = Return
$192.73
!= −1
$160
! ≈ 0.2046 = 20.46%
© Copyright, Fervent | All Rights Reserved
Return on your investment
#$%& − #$
!=
#$
#$%& #$
!= −
#$ #$
#$%&
!= −1
#$
© Copyright, Fervent | All Rights Reserved
Return of a stock
$%&' − $% $%&'
!" = ≡ −1
$% $%
Where:
!" = Return on a stock j
$% = Price of the stock at time t
$%&' = Price of the stock at time t+1
© Copyright, Fervent | All Rights Reserved
Returns With Dividends Example
Imagine you buy 67 shares of Apple
(AAPL) at $149.04, earn dividends of
$0.63 per share for 4 quarters, then sell
your shares for $191.03 each.
What is your profit & what is your return?
© Copyright, Fervent | All Rights Reserved
Profit with Dividends
Profit = Selling Price + Dividends – Purchase Price
Profit = !"#$ + &'("#$ − !"
Profit = $191.03 + ($0.63 x 4) - $149.04
Total Profit = $44.51 x 67 shares = $2,982.17
© Copyright, Fervent | All Rights Reserved
Return with Dividends
#$%& + ()*$%& − #$
!=
#$
$191.03 + $0.63×4 − $149.04
!=
$149.04
$193.55
!= −1
$149.04
! ≈ 0.2986 = 29.86%
© Copyright, Fervent | All Rights Reserved
Return with Dividends
#$%& + ()*$%& − #$
!=
#$
#$%& + ()*$%& #$
!= −
#$ #$
#$%& + ()*$%&
!= −1
#$
© Copyright, Fervent | All Rights Reserved
Return of a stock
$%&' + )*+%&' − $% $%&' + )*+%&'
!" = ≡ −1
$% $%
Where:
!" = Return on a stock j
$% = Price of the stock at time t
$%&' = Price of the stock at time t+1
)*+%&' = Dividend paid at time t+1
© Copyright, Fervent | All Rights Reserved
Summary
Profit is the $ / £ you earn from an investment. Return is the same
information, expressed in % terms.
The return on a non-dividend paying stock is calculated as:
#$%& − #$ #$%&
!= ≡ −1
#$ #$
For a dividend paying stock, the return is calculated as:
#$%& + +,-$%& − #$ #$%& + +,-$%&
!= ≡ −1
#$ #$
© Copyright, Fervent | All Rights Reserved
Now have a go
at the quiz!
© Copyright, Fervent | All Rights Reserved
