Suppose you bought $2,000 worth of stock A one year ago, and you’ve made $100 because the stock went up in price and paid a dividend. You’ve made a 5 percent profit. You also bought $1,000 worth of stock B, and that investment has earned you $100, which works out to 10 percent. Stock B clearly has done better – you made just as much money with half the investment. Return on stocks (usually called return on investment or ROI) is the percentage gain or loss on a stock over a one-year period. Calculating ROI is very handy because it enables you to easily compare the performance of different investments.
Find the total value of the stock shares you owned at the beginning of the year. If you did not make a note of this in your records, ask your broker for the market price at that time and multiply by the number of shares.
Calculate the total value of the shares at the end of the year. Simply multiply the number of shares by the market price at year's end. It’s customary to use one full year as your measuring period. The idea here is to use the same time period for all your investments so you can get comparable ROI figures for purposes of comparing the performance of different stocks.
Subtract the total value of the stock at the start of the year from the value at the end of the year. For example, if the stock was worth $2,000 to start and $2,500 at year’s end, the stock gained $500 in value. This is called an “unrealized gain” if you still own the stock. If you get a negative number because the starting value of the stock is more than the ending value, it means a loss.
Add any dividends you received during the year to the unrealized gain or loss to find your net gain or loss for the year. If you had an unrealized gain of $500 and received $50 in dividends, your net gain for the year was $550.
Divide the net gain or loss by the total value of the stock at the start of the year to calculate the return on the stock. For example, if your stock was worth $2,000 at the start of the year and you have a net gain of $550, you have $550/$2,000 = 0.275. Multiply this by 100 to convert to a percentage. The return on the stock is 27.5 percent.
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