How to Calculate Gain and Loss on a Stock

You have to know how to calculate your gains and losses properly before you can determine if your investments are making you money, Many investors focus only on the simple difference between the price at which they bought a stock and what they receive when selling but experienced investors know that understanding the complete picture is crucial. The complete picture includes looking at percentages, not just dollar amounts.

What Are Stock Gains and Losses?

Gains are an increase in an asset’s market value from its purchase price. Losses are a decrease in market value from its purchase price. There are two types of gains and losses: realized and unrealized. Unrealized gains and losses occur while you still own the asset. They’re realized when you sell the investment, resulting in an actual capital gain or loss.

Gains occur when an asset’s current price is higher than the price at which it was initially purchased. You would have an unrealized gain if you bought a share of Amazon (AMZN) stock on Nov. 15, 2023 for $142 and held it for a year because the stock closed in mid-November 2024 at about $215. You only realize the gain when you sell.

The net gain or total return you would receive wouldn’t simply be $215 – 142 = $73, however. That’s just the gross profit or a nominal return of about 51%. Trading fees, commissions, taxes, dividends received, if any, and margin interest, if used, will change the net return: what you actually have left in your pocket.

Formula for Gains and Losses

Determining if you’re making or losing money on a stock investment works the same way as when you’re buying and selling any other asset. You’ll want to know the percentage change, however, not just the dollar amount. The basic formula looks like this:

$Percentage Change = [(Selling Price – Purchase Price) ÷ Purchase Price] × 100$PercentageChange=[(SellingPrice−PurchasePrice)÷PurchasePrice]×100

If you invested $100 in a stock and later sold it for $150, you’d calculate:

($150 – $100) ÷ $100 × 100 = 50% gain

The real-world formula must include other costs and benefits:

$Total Return = [(Sale Price – Purchase Price + Dividends – Trading Fees – Taxes) ÷ Purchase Price] × 100$TotalReturn=[(SalePrice−PurchasePrice+Dividends−TradingFees−Taxes)÷PurchasePrice]×100

Calculating Gains and Losses

The calculation below excludes other costs and profit elements such as dividends received, brokerage fees, and income taxes. The gross or nominal return calculation is straightforward:

• Purchase price: $142.00
• Sale price: $215.00
• ($215 – 142) ÷ 142 = 0.514
• × 100 = 51.4%

Let’s say the shares had fallen to $100 over the same period. The nominal return would look like this:

($100 – 142) ÷ 142 = -0.2958 or 29.6%

Dollar Value Profit or Loss

Some investors use only the dollar value of their returns to gauge profitability but percentage return figures are much more useful.

Suppose an investor buys 100 shares of the hypothetical Cory’s Tequila Company at $10 per share, investing a total of $1,000. They sell those shares for $1,700 or $17 per share two months later. Their trade profit is $700.

Now let’s say the investor also bought 1,000 shares in Rob’s Sake Distillers at $10 apiece for a total investment of $10,000. They later sell those shares at $10.70 each for a total of $10,700. The investor also gained $700 in this investment but the results were significantly different.

Calculating Investment Returns

The investment in Cory’s Tequila Company was made at $10 per share and sold at $17 per share. The math for Cory’s per share percentage return looks like this:

• ($17 – $10) ÷ $10 = .70
• .70 × 100 = 70%

The percentage return on a $10-per-share investment is 70%.

The math for the second investment, Rob’s Sake Distillers, looks like this:

• ($10.70 – $10) ÷ $10 = .07
• .07 × 100 = 7%

It’s clear that Cory’s was a better investment when comparing the dollar value of their investments because it took $10,000 to gain 7% at Rob’s but only $1,000 to gain 70% by investing in the first stock.

Factors Affecting Total Gains and Losses

Several factors beyond the purchase and sale prices affect your final profit or loss:

Dividends

Regular dividends can significantly increase your total return. You can do this with them:

• Reinvest them to buy additional shares, compounding your potential returns
• Take them as cash payments, providing regular income

The dividend yield affects your total return calculation:

$Total Return = [(Final Price – Initial Price) + Dividends] ÷ Initial Price × 100$TotalReturn=[(FinalPrice−InitialPrice)+Dividends]÷InitialPrice×100

Broker commissions

Trading fees can significantly impact your net profit or increase your overall loss. Many brokers have eliminated traditional trading commissions for most stocks and exchange-traded funds (ETFs) but it’s still essential to consider other potential fees that might apply. Here are the key cost considerations:

• Flat fee per trade: Brokers historically charged a flat rate per transaction such as $4.95 per trade. Such fees have mostly disappeared for retail stock and ETF trades but they may still apply to less common assets like options or certain mutual funds.
• Percentage-based fees: Some platforms may charge a percentage-based commission for large trades or more specialized investments such as 0.25% of the total dollar value.
• Platform or account maintenance fees: Brokers may impose fees to maintain an account, offer premium data, or provide advanced trading tools.

Taxes

Capital gains tax rates depend on how long you’ve owned the stock:

• Short-term gains (assets held for one year or less): Taxed at ordinary income rates
• Long-term gains (assets held for longer than a year): Taxed at preferential rates that depend on your overall income, usually 0%, 15%, or 20%

Tax-loss harvesting can offset gains. It’s a strategy that investors use to cut their taxable income by selling securities at a loss to offset gains from other investments. This approach can help lower capital gains taxes, allowing investors to reinvest the tax savings or improve their portfolio’s tax efficiency but it’s subject to some rules.

The IRS’s wash sale rule prevents taxpayers from claiming a loss on a security if they buy a “substantially identical” investment within 30 days before or after the date of sale. The wash sale rule is designed to prevent investors from taking a tax deduction while effectively maintaining their position in the same or a similar asset. The disallowed loss is added to the cost basis of the newly purchased security if a wash sale occurs, deferring the potential tax benefit.

It’s also important to keep in mind that options and other derivatives may be taxed differently from ordinary stocks and ETFs, and foreign investments such as ADRs or funds that hold foreign assets may potentially result in foreign tax credits.

Margin interest

Some investors and traders trade on margin, borrowing to increase the amount they can invest. This is referred to as leverage. Borrowing on margin comes with interest charges that are often higher than other forms of borrowing. Margin interest compounds daily, reducing your overall returns.

Compute this formula to include the cost of margin interest in your returns:

Net Return = Gross Return – [(Margin Balance × Interest Rate) × (Days Borrowed ÷ 365)]

A more comprehensive formula for computing your total return works like this:

$Total Return = [(Sale Price – Purchase Price) + Total Dividends – Total Commissions – Total Taxes – Margin Interest – Account Fees] ÷ Initial Investment × 100$TotalReturn=[(SalePrice−PurchasePrice)+TotalDividends−TotalCommissions−TotalTaxes−MarginInterest−AccountFees]÷InitialInvestment×100

The Cost Basis

A crucial element for many investors accounting for their profits and losses is the cost basis. This must be tracked for tax purposes. It’s the original value or purchase price of an asset including any associated costs such as commissions and other fees.

Your cost basis would be $1,010 if you bought a stock for $1,000 and incurred $10 in transaction fees. The difference between the sale price and your cost basis will determine your taxable gain or loss when you sell the stock. Accurately tracking and reporting cost basis ensures that you pay the correct amount of tax and can cut your tax liability when selling investments.

Cost basis becomes more complex when you’re accounting for events like reinvested dividends, stock splits, and return of capital distributions which can alter the basis. Each purchase of additional shares of reinvested dividends at different prices adjusts the overall cost basis. Properly maintaining these records is crucial because a lower reported cost basis could lead to overpaying taxes on gains. Many brokerage firms now track your cost basis for this reason.

Tools for Calculating Investment Returns

It’s important to know how to compute your returns so you understand how your investment capital is being spent but you can use a variety of online calculators to do the work for you. These are just a few of the sites you can visit to calculate the percentage gain or loss for the stocks you hold in your portfolio:

Calculating Profits and Losses in Spreadsheets

You can also use Microsoft Excel, Google Sheets, or another spreadsheet program to help you. You can set up your own percentage change calculator using a spreadsheet. Begin by labeling the individual cells in your spreadsheet’s first columns like this:

• A1: Final Price
• B1: Purchase Price
• C1: Percentage Change

Input your purchase and final prices into the cells in the following rows:

• A2: Final Price
• B2: Purchase Price

Click on the cell for C2 and type or copy in =(A2-B2)/B2*100. Cell C2 should automatically populate with your percentage change. You would see a percentage change of 70% if you use the example of Cory’s Tequila Company with an initial investment of $1,000 and the sale netting $1,700.

Keep in mind that you can drag the formula down in Excel or Google Sheets to have it calculate further rows.

When to Take Profits

Knowing when to take profits is one of the most challenging decisions investors face because it requires a balance between potential future gains and protecting existing profits.

Many successful investors use a combination of technical and fundamental triggers such as setting specific price targets, using trailing stops to lock in gains, or monitoring for significant company changes. Common approaches include selling portions of a position at predetermined levels such as selling one-third at a 20% gain and another third at 50% while watching for red flags such as management changes or changes in finances.

The decision to take profits should also consider broader market conditions, your risk tolerance, and your financial goals.

The Bottom Line

Understanding how to calculate your true investment returns is a critical part of making prudent investment decisions even if you end up leaving the actual computations to spreadsheets and other platforms. The basic math of subtracting your purchase price from your sale price might seem simple but successful investors know to factor in all costs including taxes and dividends to get the most precise depiction of their gains or losses.

Percentage returns, not dollar amounts, provide the most meaningful way to compare different investments regardless of their size. You’ll be better equipped to assess your investment choices and build a more successful portfolio when you carefully track and calculate your complete investment returns,