Calculating the percentage gain of an investment is a fundamental skill that every investor should possess, as it provides valuable insights into the performance of their portfolio. To determine the gain or loss, investors must have a clear understanding of the initial cost of their Investment. This information can be obtained by referring to the trade confirmation provided by the brokerage firm.
Determine Percentage Gain or Loss:
- First, take both the prices (sales price and purchase price ) and subtract the selling price from the purchase price. That result is gain or loss.
- Then take the gain or loss; divide it by the purchase price.
- And lastly, you have to multiply the result by 100 and get the loss or profit percentage.
It may seem tricky, but make it easier using a stock calculator. Put in some investment information, and the tool will calculate it. There are also many benefits of using the calculator, including saving time and giving an instant answer to any calculation mistake. But the question arises here, why is it important to calculate the percentage profit and loss?
Why Is Calculating Percentage Loss and Profit Essential?
Calculating loss and profit on an investment percentage is essential because it tells us how much profit and loss we are getting to achieve the goal.
Let's learn by using an example.
If two investors earn $200 by investing in the same stock, the simple thing is if they are investing in the same price and on the same shares, they will also get the same result. On the other hand, if an investor invests $10,000 in stock and another invests $5,000 on the same stack. The second investor will profit because of less money on the risk. Also, he can invest another $5,000 in another stack to get the additional profit.
Example of calculating percentage gain or loss
The calculation of profit and loss can be used in many investment types. Let's see some examples:
Stock
For example, any investor bought 100 company shares at $20 per share, costing them $2,000 for the initial Investment. Any that 100 shares sold for $30 for each share. For calculating the profit, you can use a stock calculator to know the profit percentage.
Index
You can use the calculator and the valuation process to determine how a company performs over time. For example, a company opened at 20,000 and closed at 30,000 by the weekend.
The percentage gain calculation would be:
( 30,000 - 20,000 ) / 20,000 = 0.5 x 100 = 50%
Fees and Dividends
Investments always come with additional costs, which should add to the percentage loss or profit.
brokerage fees
By using an example, let's say an investor pays $75 for brokerage fees. An investor purchase price is $3000, and the sale price is $3,800 then the result is
( ( $3,800 - $3,000 ) - $75 ) / $3,000 = 0.2416 x 100 = 24.16 %
Dividends
Any income or payouts from the Investment, such as dividends, must be added to the gain amount. A dividend is a monetary payment made on a per-share basis to shareholders.
For example, a company pays a dividend of $2 per share and owns 100 shares. Then they have to pay $200 split up evenly in 4 payments. Using the same example taken for the above statement.
The pain is calculated as
(( $3,800 - $3,000 ) + $200 ) / $3,000 = 0.3333 x 100 = 33.33%
And assuming there are no brokerage fees and you hold the stock for a year, you can see the dividend increase the percentage return rate by more than 6% or from 26.67% to 33.33 %.
Why Do You Need to Understand the Percentage of Profit and Loss?
But understanding the concept sincerely can help the investor to get to know the movement in price. By calculating the result, investors can understand the ups and downs of that stock by comparing the part investment, and they can use it in future investments. Calculating the percentage of profit and loss can also give you an advantage in determining a security risk by the size of its change.
What Other Focus Should I Consider When Calculating an Investment’s Percentage Gain or Loss?
A security's publicly indicated percentage change does not consider commissions, slippage, or holding expenses, and investors should consider these when calculating an investment's percentage gain or loss. Likewise, when calculating percentage returns on investments, investors should include in distribution payments like dividends.
To Wind Up
Investment in shares can result in both profit and loss, and calculating it in percentage is a vital aspect; for that, there are two things that you can do to calculate the rate. The first is to calculate independently using the method mentioned in the article. Second is the easy way you can use the stock calculator to calculate. This article discussed many things that help you calculate the percentage and why you should do that.
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