Stock Return Rate Calculator
Understanding Your Stock Return Rates
Investing in the stock market involves more than just buying low and selling high. To truly understand the performance of your portfolio, you need to calculate your return rate accurately. This calculator helps you determine both your absolute Return on Investment (ROI) and your Annualized Return (Compound Annual Growth Rate or CAGR), factoring in commissions, dividends, and the time duration of your trade.
Why Calculate Stock Returns?
Calculating your stock returns allows you to benchmark your performance against market indices like the S&P 500 or the Nasdaq. Without accurate tracking, you cannot determine if your active trading strategy is generating alpha (excess returns) or if you would be better off in a passive index fund.
How the Calculations Work
1. Total Investment Cost (Cost Basis)
This is the total amount of money you put into the trade. It includes the price of the shares plus any commissions paid to enter the trade.
Total Cost = (Buy Price × Shares) + Buy Commissions
2. Net Profit or Loss
Net profit is the absolute dollar amount you gained or lost. It accounts for the selling price, dividends collected during the holding period, and subtracts the initial cost and all transaction fees.
Net Profit = ((Sell Price × Shares) + Dividends) - Sell Commissions - Total Cost
3. Return on Investment (ROI)
ROI expresses your net profit as a percentage of your total investment. This is the simplest metric to understand the efficiency of a trade.
ROI % = (Net Profit / Total Cost) × 100
4. Annualized Return (CAGR)
The Compound Annual Growth Rate smooths out the return over the holding period to give you a yearly rate. This is the best metric for comparing investments held for different lengths of time.
CAGR % = [ (Final Value / Total Cost) ^ (1 / Years Held) - 1 ] × 100
Note: Final Value includes sales proceeds minus sell commissions plus dividends.
Example Calculation
Let's say you bought 100 shares of a tech company at $50.00 per share.
- Investment: $5,000 + $10 commission = $5,010.
- Dividends: You received $50 in dividends over the year.
- Sale: You sold all shares for $60.00 per share after 2 years, paying another $10 commission.
- Exit Value: ($6,000 sale – $10 comm) + $50 div = $6,040.
- Net Profit: $6,040 – $5,010 = $1,030.
- ROI: ($1,030 / $5,010) ≈ 20.56%.
- Annualized Return: Since you held it for 2 years, the annual growth is approximately 9.8%.
Frequently Asked Questions
Does this calculator include Capital Gains Tax?
No. This calculator determines your pre-tax gross returns. Tax liabilities depend on your specific jurisdiction, income bracket, and whether the asset was held long-term or short-term.
Why is my Annualized Return extremely high?
If you hold a stock for a very short period (e.g., 2 days) and make a profit, the annualized return projects that growth as if it continued at that pace for a full year. For short-term trades, simple ROI is often a more useful metric than CAGR.