What is the Closing Price
The closing price is the final price at which a security is traded on a given trading day. The closing price represents the most up-to-date valuation of a security until trading commences again on the next trading day. Most financial instruments are traded after hours (although with markedly smaller volume and liquidity levels), so the closing price of a security may not match its after-hours price.
BREAKING DOWN Closing Price
Closing prices do not reflect the after-hours price or corporate actions, though they still may act as useful markers for investors to assess changes in stock prices over time — the closing price of one day can be compared to the previous closing price to measure market sentiment for a given security over a trading day. The closing price is only useful during periods when a company has not issued any cash dividends or conducted any corporate actions, such as stock splits, reverse stock splits and stock dividends.
Closing Price Returns
Closing prices do not reflect corporate actions, which may skew returns significantly. For example, on June 9, 2014, Apple (NASDAQ: AAPL) issued a 7-for-1 stock split. Therefore, Apple's outstanding shares were increased by a multiple of seven, while its closing share price from the day before the split was divided by seven. On June 6, the last trading day prior to Apple's stock split, the closing price was $645.57 per share. After Apple's stock split on June 9, the closing price was $93.70 per share. Since the closing prices do not include adjustments for corporate actions, the calculation of Apple's returns based on closing prices would have indicated a return of -85.49%, or ($93.70 - $645.57)/$645.57, in just one trading day.
Closing Price vs. Adjusted Closing Price
The adjusted closing prices depict the effects of corporate actions on a stock's prices. For example, on June 6, 2014, Apple's closing price was $645.57, but the stock was undergoing a stock split. Therefore, the adjusted closing price was $92.22 on the trading day prior to its 7-for-1 stock split. The adjusted closing price was calculated by dividing its June 6 closing price by seven.
Similarly, Arch Coal (OTC: ACIIQ) underwent a reverse stock split on Aug. 4, 2015. Arch Coal's closing price was 18 cents per share on Aug. 3, 2015. Following its 1-for-10 stock split on Aug. 4, 2015, Arch Coal had a closing price of $1.51, which was substantially different from its prior closing day. The adjusted closing price reflected the reverse stock split, and it was $1.80 per share on Aug. 3, 2015, which was computed by multiplying its Aug. 3 closing price by 10.