If you can't measure something, it's difficult to gauge your performance. This is also the case with stocks. While prices may increase by the same dollar amount, the actual return may be different. Investors like to use return as the best way to compare stock or portfolio performance. To convert a price increase into a return percentage, you only need the beginning and ending values of the stock.
The formula for getting the rate of return is:
(ending investment - initial investment) / initial investment × 100% = rate of return
Walk through an example to calculate the return. Let's say you invest $10,000 in a stock at the beginning of the year. At the end of the year, your account's value has increased to $15,000.
Subtract the initial value of the stock from its ending value to get the change in price. The equation is: $15,000-$10,000 = $5,000.
Divide the change in value by the initial value and multiply by 100 percent. This is: ($5,000 / $10,000) × 100% = 50%.
Your rate of return on the stock is 50%.