How to calculate total return on investment?

[GPD]

Hi all, how do we properly calculate the total return on our investment for a company who has undergo dividend,  stock split/consolidation, and right issue at discounted price?

[sykn]

Well for me, I keep a tally on all my share purchases of a particular stock, and I compute an average purchase price. Then when I receive dividends, reinvest dividends, get stock consolidation, or buy / sell shares, I adjust all my numbers accordingly. Normally, when I first buy into a stock, I usually buy when it is at or near a 52 week low. Then the next time I buy some more, the new purchase price should be lower than my current average purchase price, so that this purchase gives me a lower new purchase price. I also compute the intrinsic value of the stock, so I know how much is my Margin of Safety by my own calculations. It's not perfect, but it works for me. Hope this helps.

[Retired@52]

Hi all, how do we properly calculate the total return on our investment for a company who has undergo dividend,  stock split/consolidation, and right issue at discounted price?

Hi GPD,
If you want to do a calculation for the company, it is quite complicated.
If you want to do a calculation for personal Investment, I suggest using a Financial Calculator, it’s much easier.
As for the formulae, I’ve returned them to the Lecturers already.

Example: you invested in a stock

Year 1 - you invested $80,000 at $0.50 per share
Year 2 - you received $2,500 (Dividends)
Year 3 - you received $3,000 (Dividends) the company splits the share
Year 4 - you invested $40,000 at $0.15 per share
Year 5 - you receive $6,000 (Dividends) the company consolidated the share
Year 6 - you received $3,000 (Dividends)
Year 7 - Issued Rights, you invested $20,000
Year 8 - you sold all your shares with CD and received $170,000

The workout is as follows:

-80,000 CFj
2,500 CFj
3,000 CFj
-40,000 CFj
6,000 CFj
3,000 CFj
-20,000 CFj
170,000 CFj
IRR = 5.58% The Internal Rate of Return (IRR) is 5.58% PA. This is the “True Rate”

[GPD]

Thanks all. I am actually looking at the kind of return a REIT gives assuming an investment at some point but did not add any new shares since then except for participation in share consolidation/split and right issue which change the qty of shares.

Perhaps to be more specific:
1. do we treat dividend/distribution as a gain (return on capital) or a reduction in cost base (return of capital)? (eg, a $1 investment with a 50cts div/dis gives 50% return on first case and 100% return on second case)
2. share consolidation/split do not change the % yield but with right issue at discount price, there is a theoretical ex-right price. the question is due to right issue, the price changed with the quantity of shares (assuming participation). The %yield right after the ex-right date will be slightly different because the price per share is lowered. So there is a step change in % yield in additional to the daily price fluctuation.

I hope it is clear the problem I am facing for Q2.

[tanjm]

Thanks all.  I am actually looking at the kind of return a REIT gives assuming an investment at some point but did not add any new shares since then except for participation in share consolidation/split and right issue which change the qty of shares.

Perhaps to be more specific:
1.  do we treat dividend/distribution as a gain (return on capital) or a reduction in cost base (return of capital)? (eg, a $1 investment with a 50cts div/dis gives 50% return on first case and 100% return on second case)
2.  share consolidation/split do not change the % yield but with right issue at discount price, there is a theoretical ex-right price.  the question is due to right issue, the price changed with the quantity of shares (assuming participation).  The %yield right after the ex-right date will be slightly different because the price per share is lowered.  So there is a step change in % yield in additional to the daily price fluctuation.

I hope it is clear the problem I am facing for Q2.

The standard way to do this is to se use IRR (Internal Rate of Return). You get a single number that is a measure of your investment performance that takes care of time, and how you invested.

All you need to care about is cashflow and the cashflow date. You don't actually have to care about the stock itself.

When you make your initial investment, you simply record a negative cashflow on your investment date. When you receive a dividend, also record just the cashflow and date. When the stock splits - no need to record anything. When you sell, record the positive cashflow and so on. If you add to your investment, again just record the negative cashflow on the investment date. Finally, at today, just assume you sold all your stock at the current close price - only on the today date do you have a fake cashflow. Everything else is based on real cashflows.

In excel, use the XIRR function, inputting the cashflows and cashflow dates. It will then return you the rate of return that your investment has earned. Basically, this is similar to what retired@52 said earlier except that you can have irregular dates on your cashflows and you can use excel.

Looking at your request, I'm not sure if you are trying to simply compute the current yield on your investment?

[karlmarx]

Thanks all.  I am actually looking at the kind of return a REIT gives assuming an investment at some point but did not add any new shares since then except for participation in share consolidation/split and right issue which change the qty of shares.

Perhaps to be more specific:
1.  do we treat dividend/distribution as a gain (return on capital) or a reduction in cost base (return of capital)? (eg, a $1 investment with a 50cts div/dis gives 50% return on first case and 100% return on second case)
2.  share consolidation/split do not change the % yield but with right issue at discount price, there is a theoretical ex-right price.  the question is due to right issue, the price changed with the quantity of shares (assuming participation).  The %yield right after the ex-right date will be slightly different because the price per share is lowered.  So there is a step change in % yield in additional to the daily price fluctuation.

I hope it is clear the problem I am facing for Q2.

The standard way to do this is to se use IRR (Internal Rate of Return). You get a single number that is a measure of your investment performance that takes care of time, and how you invested.

All you need to care about is cashflow and the cashflow date. You don't actually have to care about the stock itself.

When you make your initial investment, you simply record a negative cashflow on your investment date. When you receive a dividend, also record just the cashflow and date. When the stock splits - no need to record anything. When you sell, record the positive cashflow and so on. If you add to your investment, again just record the negative cashflow on the investment date. Finally, at today, just assume you sold all your stock at the current close price - only on the today date do you have a fake cashflow. Everything else is based on real cashflows.

In excel, use the XIRR function, inputting the cashflows and cashflow dates. It will then return you the rate of return that your investment has earned. Basically, this is similar to what retired@52 said earlier except that you can have irregular dates on your cashflows and you can use excel.

Looking at your request, I'm not sure if you are trying to simply compute the current yield on your investment?

When using XIRR in excel, does each cell represents one year or one month?

Since I have numerous transactions, and hence cashflows, in any given year, am I right to say that all the cashflows in a given year are to be added?

[corydorus]

When using XIRR in excel, does each cell represents one year or one month?

Since I have numerous transactions, and hence cashflows, in any given year, am I right to say that all the cashflows in a given year are to be added?

XIRR do not need fixed periods. However the book value date is a little tricky.
All transactions including dividends, splits, different counters etc

Here's examples on how I do it. You can have multiple stocks mixed together at portfolio level too.

http://corylogics.blogspot.tw/2013/01/xi...ction.html

http://corylogics.blogspot.tw/2016/12/co...0-000.html

[karlmarx]

How can the calculation be annualised if there is no entry of date data?

[corydorus]

Yes you need to have date and amount value. All the example has.

[TTTI]

How can the calculation be annualised if there is no entry of date data?

Here's my simple example of XIRR in 2013.

You can google it, there are numerous examples teaching how to construct your own XIRR table.
It takes all of 10mins to understand.

If you make a withdrawal from your portfolio, key in the date and the amount and indicate a negative sign in front.
Deposits would be a positive.
If you receive dividends but it's NOT taken out of your portfolio (maybe in your brokerage account), then no need to input anything.
If it's directly credited to your personal account aka it's distributed from your portfolio, then treat it as a withdrawal and input a negative sum.
At the end of the period, input the date and the portfolio value at the given date, with a negative sign in front.

That's your XIRR.

All the best. Cheers.