How to calculate annual return on investment

How to Calculate Annual ReturnSmall Business|Accounting & Bookkeeping|AnnualizingBy Carter McBrideRelatedHow to Calculate Vehicle Mileage for Tax PurposesHow to Access a Rocket

How to calculate annual return on investment

How to Calculate Annual Return

  • Small Business|
  • Accounting & Bookkeeping|
  • AnnualizingBy Carter McBride
Carefully research the business plan and financial statements before buying an existing business.
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Annual return shows how an investment performs over a period of time. The annual return is a percentage, so companies are able to compare the return on two investments with different initial cash flows. For example, a stock costing $15 that earns $20 and another stock costings $100 making $25. While the $100 stock has a higher return in dollar values, the $15 stock has a higher return. This is important when seeing how investments perform.

1.

Determine the beginning price of the investment and the ending price of the investment. For example, on Jan. 1 a stock was worth $50. On Dec. 31, the stock was worth $70.

2.

Subtract the beginning price from the ending price. In the example, $70 minus $50 equals $20. This is the change in price.

3.

Divide the change in price by the beginning cost of the investment. In the example, $20 divided by $50 equals 0.4 or 40 percent.

Writer Bio

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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  • 1 How to Measure a Return on Investment
  • 2 How to Calculate Performance on Investment
  • 3 How to Calculate Sales Tax on Gross Income
  • 4 How to Calculate a Return on a Capital Investment

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