Although stocks can be risky investments, there are steps to help you reduce your risk. For instance, research can help you make an educated decision on how specific stocks may perform. But keep in mind that this isn't an exact science. That's because there are many unpredictable factors at play, such as emotions, market behavior, and global events.
As such, a company's stock can be a winner or a loser. Depending on the outcome, you'll have to determine your portfolio's gains and losses. In this article, we help you understand some of the basics of calculating gains and losses, including some of the tools available to you.
- Stocks can be risky investments but you can determine your portfolio's gains and losses.
- To calculate your profit or loss, subtract the current price from the original price.
- The percentage change takes the result from above, divides it by the original purchase price, and multiplies that by 100.
- A stock profit may not mean anything unless you know how much you need to invest in order to make that amount of money.
- There are many websites that calculate gains or losses or you can set up a spreadsheet on Microsoft Excel to do it for you.
Calculating Gains and Losses
The term gain refers to the overall increase in the value of an asset or investment, such as a stock. Gains occur whenever the current price of the asset is higher than the price at which it was originally purchased. So if you purchased a share of Amazon (AMZN) stock on Sept. 3, 2013, at $288.80 and held it until May 11, 2020, you'd experienced a gain, as the stock closed at $2,409.78.
A loss, on the other hand, is the opposite of a gain. When you incur a loss, it means the current value of an asset or investment is lower than the price at which it was originally purchased. So if you bought a single share of AT&T (T) stock on May 10, 2021, for $32.63 and sold it at $22.17 on Dec. 15, 2021, you'd have a loss.
But how do you calculate gains and losses? In order to find the net gain or loss experienced for any stocks you hold, determine the difference between what you paid for them and what you sold them for on a percentage basis. To do so, subtract the original purchase price from the current price and divide the difference by the purchase price of the stock. Multiply that figure by 100 to get the percentage change.
Net Gain or Net Loss = (Current Price - Original Purchase Price) ÷ Original Purchase Price x 100
Using the formula with the figures listed in the examples above, you'd have realized:
- A gain of 734.4% for a single share of Amazon
- A loss of 32% for a single share of AT&T
Gains and losses are categorized by the Internal Revenue Service (IRS) as long-term and short-term gains and losses. Long-term ones are realized after holding assets for more than a year while those deemed short-term are realized after being held for less than 12 months.
Dollar Value Profit or Loss
Let's say an investor buys 100 shares of Cory's Tequila Company at $10 per share for a total investment of $1,000. Suppose they sell those shares for $1700 or $17 each two months later, which means their profit for the trade is $700. Although that may seem like a sizeable profit, it may not mean much unless they know how much they needed to invest to earn that amount of money.
For example, suppose the investor also bought 1,000 shares in Rob's Sake Distillers at $10 apiece (for a total investment of $10,000) and later sold those shares at $10.70 each for a total of $10,700. With this trade, they would have profited by $700, yet it took 10 times the investment compared to the other example to earn it.
Fees and other costs can eat away at your profits or add to your losses. Make sure you factor them in when you're considering selling any stocks.
Calculating Investment Returns
To avoid this sort of profit ambiguity, investment returns are expressed in percentages. The investment in Cory's Tequila Company was made at $10 per share and sold at $17 per share. The per-share gain is $7 ($17 – $10). Thus, your percentage return on your $10 per share investment is 70% ($7 gain ÷ $10 cost).
This 70% return would be the same if the investor purchased 100 shares or 100,000 shares, provided all the shares were bought at $10 and sold at $17. By multiplying the percentage return on the investment (70%) by the total dollar amount invested, investors will know how much in dollar terms they made on this investment (70% return on $1,000 is $1,700; providing a dollar gain of $700).
Using this method, an investment in Rob's Sake Distillers would yield only a 7% return ($0.70 gain ÷ $10 cost). So, even though the gain of $700 (7% x $10,000) is equal to your CTC gain, clearly CTC's return is much higher at 70% compared to 7% for RSD.
Gains and losses are realized when you actually sell stock. Gains and losses are unrealized if the value changes but you hold onto the stock within your portfolio.
Tools for Calculating Investment Returns
You can certainly use the formula above to do so using information for specific stocks. But there are a number of tools that investors have available to them in order to help them tabulate their returns.
For starters, you may want to consider websites that do the calculations for you. The following are just a few of the sites you can visit to calculate the percentage gain or loss for the stocks you hold in your portfolio:
- Gain & Loss Percentage Calculator from babypips
- Percentage Increase Calculator from OMNI Calculator
- Percentage Decrease Calculator from OMNI Calculator
- Percentage Increase Calculator from CalculatorSoup
- Percentage Decrease Calculator from CalculatorSoup
- Calculator from Percent Change Calculator
You can also use software to help you. For example, you can set up your own percentage change calculator using Microsoft Excel. Begin by labeling the individual cells in the first columns as follows:
- A1: Final Price
- B1: Purchase Price
- C1: Percentage Change
Input your purchase and final prices into the cells in the following rows:
- A2: Final Price
- B2: Purchase Price
Click on the cell for C2 and hit the equal key. This allows you to enter the formula to calculate your percentage change. In this case, type in (A2-B2)/B2*100. Cell C2 should automatically populate with your percentage change. So if we use the example of Cory's Tequila Company with the initial investment of $1,000 and the sale netting $1,700, we get a percentage change of 70%.
Keep in mind that you can drag the formula down in Excel to carry it down into further cells.
How Do You Calculate Profit on Stock?
If you want to calculate the profit on a stock, you'll need the total amount of money you used to purchase your stock and the total value of your shares at the current price. You'll also need to know any fees associated with your transactions So if you bought 10 shares of Company X at $10 each and sold them for $20 each and incurred fees of $10, you stand to walk away with a profit of $90. Put simply, $200- $100- $10 = $90. Remember that this is just the dollar value and not the percentage change.
How Can I Calculate Long-Term Gain or Loss on Stock?
Long-term gains or losses are realized any time you sell a stock that you've held for more than a year. In order to figure out the gain or loss, you need your purchase and sale price for the stock. Subtract the purchase price from the sale price. A positive result means you have a capital gain while a negative result means you have a loss. Your capital gains tax rate depends on several factors, including your income and filing status.
How Do You Calculate Gain or Loss Percentage on Stock With a Calculator?
You'll need the original purchase price and the current value of your stock in order to make the calculation. Subtract the total purchase price from the current price of the stock then divide that by the original purchase price and multiply that figure by 100. This gives you the total percentage change.
The Bottom Line
Calculating your profit or loss on your stock holdings is a fairly straightforward procedure. It's as simple as calculating the percentage change between a beginning value and an ending value. When calculating your profit or loss, make sure you look at the percentage return as opposed to the dollar value.