What is an 'Adjusted Closing Price'

An adjusted closing price is a stock's closing price on any given day of trading that has been amended to include any distributions and corporate actions that occurred at any time prior to the next day's open. The adjusted closing price is often used when examining historical returns or performing a detailed analysis on historical returns.

BREAKING DOWN 'Adjusted Closing Price'

A stock's price is typically affected by supply and demand of market participants. However, there are some corporate actions that affect a stock's price, which needs to be adjusted in the event of these actions. The adjusted closing price is a useful tool when examining historical returns because it gives analysts an accurate representation of the firm's equity value beyond the simple market price. It accounts for all corporate actions such as stock splits, dividends/distributions and rights offerings. Investors should understand how corporate actions are accounted for in a stock's adjusted closing price.

Adjusting Prices for Stock Splits

A stock split is a corporate action that is usually done by companies to make their share prices more marketable. A stock split does not affect a company's total market capitalization, but it does affect the company's stock price. Consequently, a company undergoing a stock split must adjust its closing price to depict the effect of the corporate action.

For example, a company's board of directors may decide to split the company's stock three-for-one. Therefore, the company's shares outstanding increase by a multiple of three, while its share price is divided by three. If a stock closed at $300 the day prior to its stock split, the closing price is adjusted to $100, or $300 divided by 3, per share to show the effect of the corporate action.

Adjusting for Dividends

Common distributions that affect a stock's price include cash dividends and stock dividends. The difference between cash dividends and stock dividends is shareholders are entitled to a predetermined price per share and additional shares, respectively. For example, assume a company declared a $1 cash dividend and is trading at $51 per share on the ex-dividend date. On the ex-dividend date, the stock price is reduced by $1 and the adjusted closing price is $50.

Adjusting for Rights Offerings

A stock's adjusted closing price also reflects rights offerings that may occur. A rights offering is an issue of rights given to existing shareholders, which entitles the shareholders to subscribe to the rights issue in proportion to their shares. For example assume a company declares a rights offering, in which existing shareholders are entitled to one additional share for every two shares owned. Assume the stock is trading at $50 and existing shareholders are able to purchase additional shares at a subscription price of $45. On the ex-date, the adjusted closing price is calculated based on the adjusting factor and the closing price.

  1. Corporate Action

    Any event that brings material change to a company and affects ...
  2. Stock Split

    A stock split is a corporate action in which a company divides ...
  3. Reverse Stock Split

    A reverse stock split is a corporate action in which a company ...
  4. Cum Dividend

    When a buyer of a security is entitled to receive a dividend ...
  5. Rights Offering

    An issue of rights to a company's existing shareholders that ...
  6. Dividend Adjusted Return

    When a stock's return is calculated using not only the stock's ...
Related Articles
  1. Investing

    Understanding Stock Splits

    We explain what they are, the thinking behind them as well as their results.
  2. Investing

    If You Had Invested Right After Amazon's IPO

    Find out how much you would have made if you had invested $100 during Amazon's IPO, including how the power of the stock split affects investment growth.
  3. Investing

    Understanding Stock Splits

    Find out how stock splits work and how they affect investors.
  4. Investing

    Your Return Now If You Had Invested Right After Apple's IPO: 39,774%

    Learn about how much a $990 investment in shares of Apple Incorporated would be worth if you invested at its initial public offering price.
  5. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the underlying stock's price, the role of market psychology, and how to predict price changes after dividend declarations.
  6. Insights

    Amazon Hits $1000

    Amazon.com Inc. has hit $1000 per share, but don't expect CEO Jeff Bezos to approve a split.
  7. Investing

    Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  8. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  1. How to calculate a stock's adjusted closing price

    When the day's trading is done, all stocks are priced at close. The adjusted closing price accounts for any distribution ... Read Answer >>
  2. How does a stock split affect cash dividends?

    When a company decides to issue a stock split (or stock dividend), a couple of possibilities could occur concerning what ... Read Answer >>
  3. Understand the What and Why of Stock Splits

    A stock split is when a company increases the number of shares issued to current shareholders. Read Answer >>
  4. Does a stock dividend dilute the price per share as would a forward stock split?

    Determine if paying a dividend to shareholders dilutes the price per share. Find out how a stock split increases shares outstanding ... Read Answer >>
  5. What are reverse stock splits?

    A reverse stock split is a corporate action in which a company reduces the number of shares it has outstanding by a set multiple. ... Read Answer >>
  6. What happens to the value of a mutual fund when a stock splits?

    Find out what happens to the value of a mutual fund when a stock in its portfolio splits, including how stock splits work ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center