Calculate Investment Return in Excel
Step 1 - Input the headers
Before you can calculate your investment returns, you have to have to input what you already know.
First, for the sake of clarity, we'll type in headers for the data. In the example, you can see that the terms Beginning Value, Ending Value, and Time was typed in columns A, B, and C respectively.
These three pieces of information are pretty self-explanatory. But, if you're completely new to this, here's what they mean:
The Beginning Value of your investment is what you paid for it. If you bought your house for $200,000 that's the beginning value. If you paid $25 per share for a stock, that's the beginning value.
The Ending Value of your investment is what you sold it for. If you haven't sold this investment yet, then the Ending Value is the current value (what it's worth right now).
Time is the number of years that have passed since you purchased the investment.
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Next - format the headers and add data
We'll make the headers bold and widen the columns so that we can read them.
To make the headers bold, simply highlight cells A1, B1, and C1 and click the "B" in the toolbar (on the HOME tab, in the Font section).
To make the columns wider, it's easiest to simply double-click the line between the letters above the columns (A, B, C, and so on). This will 'auto-fit' the columns so that they're just wide enough to display all of the text. When you're in the right spot, you'll see your mouse cursor change from the normal arrow pointer to two vertical lines with arrows on both sides.
Now, we'll drop in some data to work with. If you're following along, type the same data into the same cells.
Here's what we've got to this point:
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Let's make some formulas!
Formulas are probably what scare people about Excel the most. Every formula in Excel begins with an equal sign (=).
Formulas can be very simple. For example, if you typed '=A2+B2' in cell D2, the result of that formula would be displayed. In our example, the number 418 would be displayed (198 + 220).
Formulas can also be very complex. Formulas comprised of hundreds of characters, with dozens of functions, pulling data from tens of thousands of cells. For this tutorial, the formulas we use will be on the relatively simple side.
So what formula do we use to calculate our Total Return? In cell D1, type (or copy and paste) the following:
This tells Excel to take our Ending Value and divide it by our Beginning Value and then subtract 1 to give us our Total Return.
Why do we subtract 1? If we didn't, we would only know how much bigger (or smaller) the Ending Value was compared to the Beginning Value, not the percentage gain (or loss).
Look at it this way - if our Beginning Value was 1 and our Ending Value was 2, then we would have a 100% increase (doubled). But if you simply divide 2 by 1, the result is 2 (200%). That's why we have to subtract 1 to get the amount of the gain (100%).
So, after you've typed (or copied) the formula above into cell D2, Excel is probably displaying something like '.111111' This is correct, however, we'll change the formatting to something more readable in a just a bit.
For now, we need to copy the formula in cell D2 and paste it into cells D3 and D4. Do this by clicking on (or using the arrow keys to move) the active cell (the one with the thick green border around it) to cell D2.To copy, hold the 'Ctrl' button on your keyboard and push the letter 'C.' Alternatively, you can click on the Copy icon in the Clipboard section on the HOME tab. It's the one with the two sheets of paper side by side. If you've done this right, you should see little dots dancing around cell D2. This lets you know it's been copied.
To paste - move the active cell to D3 using the mouse or the arrows on the keyboard. Hold the 'Ctrl' button again and press 'V' this time. Alternatively, you can select the big Paste icon next to the Copy icon on the HOME tab, Clipboard section. The Paste icon is the one with the little sheet of paper on the clipboard.
If you've been successful you should see the value '1.179245' in cell D3. You might have expected Excel to display the same figure (.111111) in D3 as was calculated in D2. But, Excel is smart and it knew that you wanted to use cells B3 and A3 in your formula in cell D3!
Go ahead and do the same thing in cell D4. Copy from D2 and paste in D4. The result should be '.863946.'
Let's add a header to the formulas we just entered. Let's call this field Total Return. Type that in cell D1, and make it bold like the other headers. Also, widen the column so that the text doesn't spill over into cell E1.
As mentioned earlier, we want to change the formatting of the formulas we entered. Returns are usually expressed as percentages, so that's what we'll do here. Highlight cells D2, D3, and D4 and then click on the percentage icon '%' on the HOME tab, in the Number section.
The total returns should now read 11.11%, 117.92%, and 86.39%. If you're following along, your spreadsheet should look as follows:
Last step - calculate annualized return
Returns on investments are typically expressed in annual terms, not total terms. This allows returns to be compared. Doubling your money, i.e. getting a 100% return is great if you do it in 2 years. If it takes 20 years, that's not so great. 50 years is even worse. So, that's why we calculate an annualized return, so we can really size up how well an investment has performed.
Give this new field a header by typing 'Annual Return' in cell E1. Make it bold like the other headers. Also, widen the column so that the text doesn't spill over into cell F1.
The formula to figure Annual Return is going to be a bit more complicated than the one needed to calculate Total Return. Type or paste the following into cell E2:
Yikes! I won't get into the math behind this too much, but here's an idea of what's happening:
First, we're figuring the change in values by dividing the Ending Value by the Beginning Value. =(B2/A2) is how we do this
Then we're working backward from the Ending Value to the Beginning Value based on the amount of Time entered previously. The ^(1/C2) portion of the formula is how we do this. If you're not familiar with the "^" symbol - that's a carat. It is used in calculations where we want to take something to the power or something else. For instance, =2^2 (2 to the power of 2, or 2 squared) would give us a result of 4. Without getting into too many details, when figuring compounding returns we would take our return to the power of whatever is in the Time field. But, since we're trying to figure what return was compounded, we're using the inverse (1/C2) of the number of years that have passed.
If you can't quite wrap your head around that, don't despair. It's a little advanced. Just because you can't say what 1,852 × 8,135 is off the top of your head, doesn't mean you can't find the answer with a calculator. All you need to know is if you've followed the steps to this point, then you're going to be able to find the Total Return and Annual Return for any investment.
After you entered the formula above, the result probably reads '2%.' If not, format the cell as you did for the results in the Total Return field (HOME tab, Number section, % icon). The calculation is correct, but it's rounded down We want an answer that's a little more exact. So, in the HOME tab, Number section, close to the % icon, you should see, to the right, two icons that have 3 zeros each and arrows that point right or left. Make sure E2 is the active cell and click the icon with 3 zeros and an arrow that points to the left (click it twice). This should increase the decimal and give you a result that reads '2.37%.'
Copy cell E2 and paste into cells E3 and E4. Make sure they are formatted as percentages and have two digits after the decimal.Your screen should now look like the picture below:
THAT'S IT! You're done! You now know how to calculate total returns and annual returns in Excel.
One last thing!
One of the great things about Excel is that the formulas will do their job, even if the information they were built upon changes.
For example, try changing the Beginning Value, Ending Value, and Time. You'll see the Total Return and/or Annual Return automatically update!
I hope you found some value in this post. If you're new to Excel, maybe now you can see the potential for how it can help you solve problems. If you're somewhat experienced with Excel, maybe you learned the formulas needed to calculate investment returns. On my website, , I delve into more advanced topics related to investing and financial modeling. If that sort of thing interests you - check it out.
Another person's take on calculating investment returns
© 2018 Chris-Charles