How to Calculate Annual Percentage Returns on Stocks

by C. Taylor, studioD

Calculating your stock's annual percentage return describes the investment's performance and allows you to compare its return with other opportunities. What complicates this calculation is stocks are rarely held for exactly one year, which means the basic return calculation only describes the return over the time period you held the stock. This does not allow an unbiased comparison with other annual interest rates. Annualizing the return rate makes it comparable to other investments.

Divide the selling price of the stock by the purchase price to calculate the gain factor. As an example, if you purchased the stock for $50 per share and sold it 60 days later for $52 per share, then the gain factor would be 1.04.

Divide 365 by the number of days you held the stock. It does not matter if you held the stock for less than or more than a year. In the example, 365 divided by 60 gives you 6.0833 compounding periods in the year.

Raise the gain factor to the power of the number of compounding periods to calculate the annual gain factor. In the example, you would raise 1.04 to the power of 6.0833 to get 1.2695.

Subtract 1 to get the annual return. In the example, your stock's annualized return would be 0.2695, or 26.95 percent.

About the Author

C. Taylor embarked on a professional writing career in 2009 and frequently writes about technology, science, business, finance, martial arts and the great outdoors. He writes for both online and offline publications, including the Journal of Asian Martial Arts, Samsung, Radio Shack, Motley Fool, Chron, Synonym and more. He received a Master of Science degree in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences at College of Charleston. He also holds minors in statistics, physics and visual arts.

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