How to Calculate Annual Return
- Small Business|
- Accounting & Bookkeeping|
- AnnualizingBy Carter McBride
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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.
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.
Subtract the beginning price from the ending price. In the example, $70 minus $50 equals $20. This is the change in price.
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.
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