How to calculate return received on investments?

Question

I'm trying to calculate the return we are receiving on equity investments on a quarterly basis. Would the formula be
(current balance-original investment)/original investment?
Say we invested $700,000 in June 2005. As of June 30,2006 our balance is 1,058,500 would our return be 51%

Oh and I forgot to add we invested an additional 250,000 November of 2005, would that change the calculation of the return?

Answer 1

In simple terms, you calculate your overall return by taking the amount you made or lost divided by what you started with. Now you'd take this figure and divide it by 4 to get your quarterly performance.

Now this is NOT a totally accurate result, because you would have to factor in your additional investment that was made later on.

But a general sense of your quarterly return can be calculated the way I explained above.

So if you started with $100 and had $120 by years end, your overall return for the year would be the $20 difference divided by the $100 you started with. This gives you a 20% proft. To get the quarterly return, you'd divide that 20% by 4, giving you 5% per quarter.

Answer 2

In your case, there are multiple investment dates that do not conform to a quarterly schedule, so the solution is somewhat complicated. Here's what I would do:

1. Compute monthly rate of return. In Excel, you can do:

= IRR(-700000, 0, 0 0, 0, -250000, 0, 0, 0, 0, 0, 0, 0, 1058500)

The assumption is that you invested $700k on June 1, 2005 and an additional $250k on November 1, 2005.

This comes out to 0.93% per month.

2. Compound monthly return to obtain quarterly return. In Excel, you can do:

= 1.0093^3-1

This comes out to 2.82%. This is your quarterly return on investment.

Answer 3

The 51% is not correct if your ending balance includes the additional money you put in.

A better value should be (Ending Balance)/(Starting Balance + Deposits) - 1

For you this would be (1,058,500/(700,000+250,000) -1 = 11.42%

I say it is better, because it isn't really correct to mix returns that have different time horizons. This actually gives you the correct value if you put the extra money in at the beginning of the period.

Answer 4

51.214% would be correct. Of course, that's not the quarterly basis you were asking about.

Your quarterly return is NOT 51% divided by 4.

51%/4 equals 12.8%.

700,000 compounded by 12.8% quarterly returns 1,133,413.

What you're looking for is the geometric quarterly. The result ends up being about 10.9%, compounded quarterly.

Answer 5

51% would be your overall return. Just take your yearly % gain and divided by 4 (for your quarterly return)

And can you tell me what the heck you are investing in? I need those kinds of returns!! THANKS!!!