It is important for investors to 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 in order to compute the percentage gain on the investment. The investment gain or loss is then calculated by subtracting the buying price from the selling price.
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| How to Determine an Investment's Percentage Gain or Loss (Detailed Guide) |
Investors can ask their broker for the original purchase price if they don't already have it. The initial buy and selling prices, as well as the investment's financial information, are all included in the trade confirmations that brokerage firms provide for each transaction, either in print form or online.
Investment Percentage Gains and Losses
A loss on the investment occurs if the percentage turns out to be negative since the market value is less than the initial purchase price, also known as the cost basis. There is a gain on the investment if the percentage is positive because the market value or selling price is larger than the initial purchase price.
- Subtract the selling price from the initial purchase price. The outcome is the gain or loss.
- Divide the investment gain or loss by the original amount or purchase price of the investment.
- To determine the percentage change in the investment, multiply the figure by 100 at the end.
Percentage Gain or Loss Calculation Formula
The formula for determining the percentage gain or loss without selling the investment is fairly similar. 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 had not yet been sold, the gain or loss would not have been realized.
- The dollar amount equivalent to the gain or loss in the numerator will be produced by the percentage gain or loss computation.
- To get a decimal, the dollar amount of the gain or loss is divided by the initial purchase price. The decimal denotes how much the gain represents in comparison to how much was initially spent.
- Simply move the decimal point to the right after multiplying by 100 results in the percentage gain or loss relative to the initial investment.
How Important is Calculating Percentage Gain or Loss?
It's crucial to determine the gain or loss on investment as a percentage 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. At first glance, it appears that both investments produced the same outcome. However, if one investor spent $20,000 on the stock when it was first acquired and the second person invested just $10,000, the second investor outperformed the first since less money was at stake.
Furthermore, the second investor might spend the remaining $10,000 (assuming each has $20,000 to invest) in a second stock and earn a profit.
Illustrations of Percentage Gain or Loss Calculations
Many different sorts of investments can benefit from the percentage gain or loss computation. Here are two examples:
Stock
Assume an investor purchased 100 shares of Intel Corp. (INTC) for $30 per share, resulting in a $3,000 initial investment ($30 price * 100 shares).
The price per share for the 100 shares was $38, thus the total selling revenues would be $3,800 ($38 * 100). The monetary gain on the investment would be $800 ($3,800 - $3,000).
The % gain would be calculated as follows:
- ($3,800 revenues from the selling – $3,000 original price) / $3,000 = 0.2667 x 100 = 26.67%.
The gain can also be computed using the per-share price, as shown below:
- ($38 revenue from the selling – $30 purchasing cost) / $30 = 0.2666 x 100 = 26.67%.
Index
The same approach would apply if an investor wished to determine how the Dow Jones Industrial Average (DJIA) performed during a specific time period. The Dow is a stock market index that keeps tabs on 30 of the most reputable American corporations.
Assume that the Dow began at 24,000 and ended at 24,480 towards the conclusion of the week.
The % gain would be calculated as follows:
- (24,480 – 24,000) / 24,000 = 0.02 x 100 = 2%
Fees and Dividends Are Special Considerations
The assessment of percentage gain or loss should take into account the costs associated with investing. The samples above did not account for broker fees and commissions, as well as taxes.
To account for transaction expenses, divide the gain (selling price - buying price) by the investment costs.
Fees
Continuing with the Intel example, suppose the investor was charged $75 in broker fees. The increase in percentage terms would be computed as follows:
- (($3,800 revenues from the selling – $3,000 original price) – $75) / $3,000 = 0.2416 x 100 = 24.16%.
The brokerage charge decreased the percentage rate of return on investment by more than 2%, from 26.67% to 24.16%.
Dividends
The amount would need to be added to the gain amount if the investment generated any income or payouts, such as a dividend. A dividend is a monetary payment made to shareholders that is calculated per share.
Assume Intel pays a $2 dividend per share. Because the investor held 100 shares, Intel would pay $200 in four equal quarterly installments.
The following is how the percentage gain would be calculated:
- (($3,800 revenues from the selling – $3,000 original price) + $200) / $3,000 = 0.3333 x 100 = 33.33%.
We can see that the dividend boosted the annual percentage rate of return for the investment by more than 6%, or from 26.67% to 33.33%, assuming there were no brokerage costs and the stock was held for a full year. Considering that the quarterly dividend payments would be $50 each if the shares were kept for two quarters as opposed to one year, we would increase the gain amount by $100 (instead of $200).
Investors can receive a more realistic depiction of the percentage gain or loss on investment by including transaction charges, account fees, commissions, and dividend income.
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