Example computation ROI of a share

Financial - Examples for the financial calculators

Wednesday, 07 February 2007 22:17

Suppose you have bought 1000 shares on May 5, 2006 and sold on October 4, 2006. You want to compute the ROI on this transaction. You can use this calculator for this calculation.

There is more to compute than the relative difference of the buy and sell price. The costs for buying and selling were 0.1% of the total amount plus $ 10 per transaction. In addition you borrowed $ 200 for buying the shares.

The buy price was $ 10 and the sell price was $ 11. On September 1, 2006 you got a dividend payment of $ 200 and in addition you got one share dividend per 100 shares. The credit interest on the brokerage account was 2% and the debit interest on the loan was 6%. When buying the exchange rate was $ 0.7915 for a dollar and when selling you got $ 0.785 for a dollar.

In the table below the fields are given that need to be entered into the form for this computation with this calculator.

Field	Value entered:	Remark
General:
Number of shares:	1000
Bought shares:
Date (YYYY-MM-dd):	2006-05-05	Buy date, years first, then months, then days
Share price:	10	Buy price of the share
Transaction costs for buying:	10 +0.001100010	0.1% of the total buy amount plus $ 10
Sold shares:
Date (YYYY-MM-dd):	2006-10-04	Sell date, ears first, then months, then days
Share price:	11	Sell price.
Transaction costs for selling:	10 +0.001101011	0.1% of the total sell amount plus $ 10
Dividend:
Cash dividend:	200	Dividend payment: $ 200
Dividend in shares:	1000/100	Stock dividend of 1 share per 100 shares
Dividend date (YYYY-MM-dd):	2006-09-01	Date dividend payment
Interest on dividend (%):	2	credit interest on the brokerage account
Loan:
Borrowed amount:	200
Interest over loan (%):	7	debit interest over brokerage account

Note that complete formula's can be entered in the numeric fields. Furthermore the credit interest is separated from the debit interest: the computation does not balance out the debt with the cash dividend. If you want the credit balance to be subtracted from the debit balance then enter 7% in the last field.

The same transactions can also be entered in the Trading simulator. This Trading Simulator can compute the ROI as well. Cut and paste the input data in the field below into the field in the tab HTML input of the Trading Simulator and click Load into Calculator. Then the tab Directe Input will appear. Click on Compute within this tab. This will make the calculator switch to the tab Output. Other results are displayed in the tab Diagrams.

<div><b>Start date:</b> <span id='calculationStartDate'>2006-05-05</span></div>
<div><b>End date:</b> <span id='calculationEndDate'>2006-10-04</span></div>
<div><b>Cash Balance:</b> <span id='startAmount'>-200.0000</span></div>
<table title='Interest' border='1'>
  <thead><tr><th>Date<br/>YYYY-MM-dd</th><th>Interest (%)</th><th>Credit/Debit</th></tr></thead>
  <tbody id='creditDebetInterestRows'>
    <tr>
      <td id='interestDate'>2006-05-05</td>
      <td id='interestRate'>2.0000</td>
      <td id='creditDebetInterest'>credit</td>
    </tr>
    <tr>
      <td id='interestDate'>2006-05-05</td>
      <td id='interestRate'>7.0000</td>
      <td id='creditDebetInterest'>debet</td>
    </tr>
  </tbody>
</table>

<table border='1'>
  <thead>
    <tr>
      <th title='Category'>Category</th>
      <th title='Ticker'>Ticker</th>
      <th title='Interest date: YYYY-MM-DD'>Interest date</th>
      <th title='Costs'>Costs</th>
      <th title='Price input: unchecked for cash dividend or coupon interest'>Price Input</th>
    </tr>
  </thead>
  <tbody id='categoryDefinitions'>
    <tr>
      <td id='category'>share</td>
      <td id='ticker'>A</td>
      <td id='interestDate'>2006-05-04</td>
      <td id='costs'>10 +0.001*1000*10</td>
      <td id='hasPrice'>true</td>
    </tr>

</tbody>
</table>

<table border='1'>
  <thead>
    <tr>
      <th title='Category'>Category</th><th>Ticker</th>
      <th title='Interest date (YYYY-MM-DD)'>Interest Date</th>
      <th title='false means cash dividend or coupon interest'>Price known</th>
      <th title='Number of shares'>Number</th>
      <th title='Amount'>amount</th>
      <th title='Price'>Price</th>
      <th title='Spread'>Spread</th>
      <th title='Costs'>Costs</th>
    </tr>
  </thead>
  <tbody id='transactionItems'>
    <tr>
      <td id='category'>share</td>
      <td id='ticker'>A</td>
      <td id='interestDate'>2006-05-04</td>
      <td id='hasPrice'>true</td>
      <td id='nShares'>1000.0000</td>
      <td/>
      <td id='price'>10.0000</td>
      <td id='spread'>0.1000</td>
      <td id='costs'>20.0000</td>
    </tr>
    <tr>
      <td id='category'>share</td>
      <td id='ticker'>A</td>
      <td id='interestDate'>2006-10-04</td>
      <td id='hasPrice'>true</td>
      <td id='nShares'>-1010.0000</td>
      <td/>
      <td id='price'>11.0000</td>
      <td id='spread'>0.1000</td>
      <td id='costs'>10 +0.001*1010*11</td>
    </tr>
    <tr>
      <td id='category'>share</td>
      <td id='ticker'>A</td>
      <td id='interestDate'>2006-09-01</td>
      <td id='hasPrice'>false</td>
      <td/>
      <td id='amount'>200.0000</td>
      <td/>
      <td/>
      <td id='costs'>0.0000</td>
    </tr>
    <tr>
      <td id='category'>share</td>
      <td id='ticker'>A</td>
      <td id='interestDate'>2006-09-01</td>
      <td id='hasPrice'>true</td>
      <td id='nShares'>10.0000</td>
      <td/>
      <td id='price'>11.0000</td>
      <td id='spread'>0.0000</td>
      <td id='costs'>-110.0000</td>
    </tr>
  </tbody>
</table>

The ROI comparable with the ROI of the calculator ROI of a share is displayed after the text ROI (with costs) in the tab Output. This ROI is slightly different between the two calculators. The reason is that the Trading Simulator only computes interest over the actual balance. The first calculator computes debit interest over the full loan.

The Trading Simulator needs an initial balance. In this case the assumtion is that you already own the shares on 2006-05-05 and that the balance is -200 at at that date. So the input is a start date at 2006-05-05 and a trade at 2006-05-04. For the computation of the ROI the calculator takes all costs before the start date into account. This means that the ROI is calculated from 2006-05-05 to 2006-10-04 over an invested amount of $ 9820.

Another difference between the two calculators is that the Trading Simulator keeps track of hidden trading costs arising from the spread. In the long run trading costs are a decisive key to the success of each investor.

This example for the Trade Simulator has an input row for the stock dividend. This particular transaction has negative costs. This is a trick to make sure that the computations do not decrease the cash balance due to the stock dividend input. The negative costs are neglected for the computation of the total costs in the tab Output.