Total stock return = [ (P1 – P0) + D ] ÷ P0
P0 = Initial price of stock
P1 = Closing price of stock
D = Dividends
Total stock return formula is used to calculate the gains or growth in the price of a stock and any dividends earned on investment. A share or stock can have only two types of growing or earnings patterns which includes either by dividends or by price increment. In the formula above the numerator value calculates the difference in price for the period (i.e. increase in price). On the other side denominator takes in to account the total return earned by the stock on the basis of original price (buying price).
Calculating profit earned with stock return formula
The formula for total stock return calculates the ROI in term of percentage. To convert the values in to cash terms a simple tweak is enough and you can do that by using the following equation. Although, percentage terms helps in quick comparison but some people like to look in the profit figures.
Total return = (P1 – P0) + D
Let’s suppose, that an individual buy shares for $700 and after one year dividend paid for shares was $30 while the price of share at that time was $750. Now if we calculate the total return then it will be;
Total return = (750 – 700) + 30
Total stock return formula example
We will continue with the example we discussed earlier, where the initial price of stock was $700 and closing price for the period was $750 in addition to a dividend of $30 at the end of period. After putting values in the formula we get;
Total stock return = [ (750 – 700) + 30 ] ÷ 700
= 80 ÷ 700
Total stock return formula alternatives
One can also calculate total stock return by using another mix of formula which include dividend yield and capital gains yield.
Total stock return = Dividend yield + Capital gains yield
The above equation can be used as an alternate to calculate total stock return. It is derived by separating two values of the formula including stock appreciation and dividend. After separating both values we can then replace it in dividend yield and capital gain yield respectively. We can here represent the resultant value in both percentage term and mathematical figure term.