When it comes to investing, you have to monitor how your stocks are faring to determine if you're successful. Figuring your stock gains and losses in absolute terms tells you how much you've made or lost. Calculating your gains or losses as a percentage helps you compare investments of different sizes. And, unless you want a potentially costly surprise from the Internal Revenue Service when tax time comes around, you also need to calculate your gains for income tax purposes.
Calculating Gains
In many cases, you can calculate the stock price appreciation simply by subtracting the current price of the stock from the original price of the stock. For example, if you bought a stock for $100 a year ago and now it is worth $120, subtract $100 from $120 to find the stock price has appreciated by $20.
However, that only works if the stock hasn't split. A stock split occurs when the company issues a certain number of new shares for every old share already in existence. For example, in a 2-for-1 stock split, for each old share you own, you receive two new ones. If the stock has split during the time you are calculating the price appreciation, multiply the number of new shares for every old share by the current price. Then, subtract the original price. For example, say you purchased a stock for $100, then the stock had a 3-for-1 split, and each share now is worth $40. To find the appreciation, multiple $40 by 3 to get $120, then subtract $100 to find the appreciation is $20.
Calculating Percentage Increase
Few people would turn down making a profit on an investment, but there's a big difference between making $20 when you invested $100 versus making $20 if you invested $10,000. To calculate stock price appreciation relative to the initial investment, calculate the appreciation as a percentage. To do so, divide the gain or loss by the initial investment. Then, multiply the result by 100. For example, if you made $20 on a $100 investment, divide $20 by $100 to get 0.2, then multiply 0.2 by 100 to find the stock appreciated by 20 percent.
Calculating Taxable Gains
When you sell stocks, you also have to calculate your gains for income tax purposes. The formula is slightly different because you include your transaction costs. First, you get to increase your initial investment by the trading fee to buy it. Second, you decrease your sales price by your sales trading fee. For example, if the stock went up $20 but you paid $5 to buy it and $5 to sell it, your taxable gain is only $10. While these amounts might not make a huge difference on any one trade, remembering to include your trading costs can add up over the course of a year, especially if you are an active trader.
