Investors must know how to determine their investment’s percentage gain since it is simple to do so. Investors must first ascertain the investment’s original cost or purchase price to compute the percentage gain on the investment. The investment gain or loss is then calculated by deducting the investment’s acquisition price from its selling price. Investors can ask their broker for the initial purchase price if they don’t already have it. For every transaction, brokerage houses provide trade confirmations, either in print form or online, that include the original buy and sell prices and the investment’s financial information.
Calculating the Percent Gain or Loss
- Add the original purchase price to the selling price. Gain or loss is the outcome.
- Divide the investment’s gain or loss by its initial value, which is typically its acquisition price.
- To get the percentage difference in the investment, multiply the figure by 100.
A loss on the investment occurs if the percentage turns out to be harmful since the market value is less than the initial purchase price, also known as the cost basis.
There has been a profit on the investment if the percentage is positive since the market value or selling price is higher than the initial purchase price.
Computing Net Profit or Loss Formula
- The financial equal of the profit or loss in the denominator will be calculated as a percentage gain or loss.
- To get a decimal, the dollar figure of the profit or loss is split by the initial purchase price. The decimal denotes the amount of the gain concerning the initial investment.
- We are simply moving the decimal point to the right after multiplying by 100 results in the percentage profit or loss relative to the initial investment.
Investment percentage gain=purchase price sold−purchase price×100
A similar computation must be used to establish the percentage of profit or loss despite selling the investment. The selling price would be replaced with the current market price. The outcome would be the unrealized gain (or loss), which would signify that since the investment hadn’t yet been sold, the profit or loss would not have been realized.
Why It’s Important to Calculate Percentage Profit or Loss
It’s crucial to determine the gain or loss on a percentage of investment since it illustrates the difference between what was gained and what was required to obtain the gain. For instance, if two investors each made $500 from buying the same stock, their gains would be equal. It first seems as though both investments produced the same outcome. However, if a second investor invested only $10,000 instead of the first’s $20,000 when buying the stock, the second investor would have fared better since less money was on the line.
Additionally, the second investor may make an extra profit by investing the remaining $10,000 (assuming each had $20,000 to invest) in a second stock.
Stock
For instance, if an investor purchased 100 shares of Intel Corp. (INTC) at $30 each, the first investment would have cost $3,000 ($30 price * 100 shares).
The 100 shares were sold for $38 each, which translates to $3,800 in sales profits ($38 per share * 100). The yield on the investment may amount to $800 ($3,800 – $3,000).
To get the percentage gain, divide the sale price ($3,800) by the cost ($3,000): 0.2667 x 100 = 26.67%.
Alternatively, the gain may be determined using the price per share, as shown below:
($38 selling price – $30 purchase price) / $30 is 0.2666 times 100, which is 26.67%.
Index
The same technique would be used to assess the Dow Jones Industrial Average (DJIA) performance over a specific time frame. The Dow is an indicator that monitors 30 equities from the oldest American corporations.
Let’s use the Dow’s opening price of 24,000 as an example. It would complete the week at 24,480.
Calculating the percentage gain is as follows: 2% (24,480 – 24,000) / 24,000
($38 selling price – $30 purchase cost) / $30 is 0.2666 times 100, which is 26.67%.
Unique Factors: Fees And Dividends
The percentage gain or loss assessment should consider the costs associated with investing. Taxes and broker commissions were not taken into account in the scenarios mentioned above.
Decrease the gain (selling price – buying price) by the cost of investing in accounting for transaction costs.
Fees
Continuing with the Intel example from before, let’s assume that the broker assessed the investor $75 in fees. This is how the percentage gain will be determined:
(($3,800 selling earnings – $3,000 initial cost) – $75)/$3,000 is equal to 0.2416 times 100, or 24.16%.
We see that the brokerage charge caused the investment’s percentage return rate to drop from 26.67% to 24.16%, a decrease of more than 2%.
Dividends
Any income or payouts received from the investment, such as dividends, would have to be included in the gain figure. A dividend is a monetary payment made on a per-share basis to shareholders. Let’s use Intel as an example and assume the business distributed a $2 per share dividend. Intel would pay $200 over four quarterly payments since the investor bought 100 shares.
This is how the percentage profit would be determined:
(($3,800 sale proceeds – $3,000 original cost) + $200) / $3,000 = 0.3333 x 100 = 33.33%.
We see that the dividend boosted the annual percentage rate of returns for the investment by more than 6%, or from 26.67% to 33.33%, assuming there were no brokerage costs and the stock remained held for an entire year.
Instead of adding $200 to the gain, we would add $100 as the quarterly dividend payouts would be $50 each if the stock were held for two quarters rather than one year.
Investors can get a more realistic picture of an investment’s percentage gain or loss by factoring in transaction expenses, account fees, fees, and dividend income.
