The primary goal of investing in the stock market is to make money. Investors buy stock via brokers or directly at a specified price, and then sell it when the moment is appropriate to profit from their investment. This is the most common way to profit from the market. The equities might be held for a long or short period of time, depending on the tax regime that the investor is attempting to follow.
The purchase and sale prices have the greatest impact on investment gains; nothing else has as big of an impact as these two figures. Let’s look at percent increases a little more closely.
What is % Gain?
To comprehend percentage gain, it is necessary to first comprehend what gain is. Gain is defined as an increase in the value of an asset you own (such as market securities). Let’s say you have 50 shares valued $100 at the start of the month. When you sold those shares at the end of the month, they were worth $150. The selling of an asset resulted in a profit because the sale price was higher than the purchase price. Gains, as opposed to losses, occur when the sale price is lower than the purchase price. Gains are what keep investors in the market.
A percentage gain, or percent gain, is a figure calculated by applying a formula to the buy and sale prices of a stock.
Determining Percentage Gain or Loss
Subtract the initial purchase price from the selling price. The gain or loss is the end consequence.
Divide the gain or loss from the investment by the investment’s original amount or acquisition price.
Finally, multiply the value by 100 to get the investment’s percentage change.
There is a loss on the investment if the percentage is negative since the market value is less than the original purchase price—also known as the cost basis.
1 There is a profit on the investment if the percentage is positive because the market value or selling price is higher than the original purchase price.
Formula for Calculating Percentage Gain or Loss
The numerator’s gain or loss will be converted to a dollar figure using the percentage gain or loss calculation.
To make a decimal, divide the dollar amount of the gain or loss by the initial purchase price. The decimal denotes the amount gained in comparison to the initial investment.
By multiplying the decimal by 100, you can get the percentage gain or loss as a proportion of the initial investment amount.
The calculation for calculating the percentage gain or loss without selling the investment is quite similar. The selling price would be replaced with the current market price. The result would be an unrealized gain (or loss), indicating that the gain or loss had not yet been recognized because the investment had not been sold.
Why Calculating Percentage Gain or Loss Is Important
Calculating an investment’s gain or loss as a percentage is crucial since it reveals how much was generated against how much was required to achieve the gain. 2
For example, if two investors each got $500 by investing in the same stock, their gains were equal. At first glance, both investments appear to have yielded the same result. However, if one investor spent $20,000 on a stock and the second investor only paid $10,000, the second investor outperformed the first because less money was at risk.
In addition, if both investors had $20,000 to invest, the second investor might invest the remaining $10,000 in a second stock and earn a profit.
Examples of Calculating Percentage Gain or Loss
Many different sorts of investments can benefit from the percentage gain or loss computation. Two instances are provided below.
Let’s imagine an investor purchased 100 shares of Intel Corp. (INTC) for $30 per share, resulting in an initial investment of $3,000 ($30 price * 100 shares).
The 100 shares were sold for $38 per share, resulting in a total profit of $3,800 ($38 per share * 100). The gain on the investment would be $800 ($3,800 – $3,000) in dollars.
The % gain would be calculated as follows:
(Sale revenues $3,800 – initial cost $3,000) / $3,000 = 0.2667 x 100 = 26.67 percent
The gain can also be calculated using the per-share price, as shown below:
($38 buying price – $30 selling price) / $30 = 0.2666 x 100 = 26.67 percent
The similar calculation would be used if an investor wanted to see how the Dow Jones Industrial Average (DJIA) has performed over time. The Dow Jones Industrial Average is a stock market index that monitors 30 of the most well-known corporations in the United States.
Consider the Dow Jones Industrial Average, which opened at 24,000 and ended the week at 24,480.
The % gain would be calculated as follows:
2 percent = (24,480 – 24,000) / 24,000 = 0.02 x 100
Special Considerations: Fees And Dividends
Investing does not come without costs, which should be factored into the percentage gain or loss calculation. Broker fees and commissions, as well as taxes, were not included in the instances above.
Reduce the gain (selling price – buying price) by the investment costs to account for transaction costs.
Let’s imagine the broker charged the investor $75 in fees, like in the Intel case above. The following formula might be used to compute the percentage gain:
We can observe that the brokerage fee reduced the investment’s percentage rate of return by over 2%, or from 26.67 percent to 24.16 percent.
Any income or dividends from the investment, such as a dividend, would need to be added to the gain amount. A dividend is a payment made to shareholders in the form of cash, and it is set up on a per-share basis. 4
Let’s use Intel as an example and imagine the business paid a $2 per share dividend. Intel would pay $200 in four quarterly installments because the investor owned 100 shares.
The following formula might be used to compute the percentage gain:
We can see that the dividend boosted the percentage rate of return for the investment by more than 6%, or from 26.67 percent to 33.33 percent, assuming there were no brokerage fees and the stock was held for a year.
We would add $100 to the gain amount (instead of $200) if the stock was held for two quarters rather than one year, because the quarterly dividend payments would be $50 each.
Investors can get a more realistic portrayal of the % gain or loss on an investment by include transaction charges, account fees, commissions, and dividend income.