Return on Investments

Return of investments is an easy way to gauge whether an investment is good or not. When doing stock analysis, one of the first thing to do is calculate return on investment. Return on investment calculation is easy and there is a simple return on investment formula for calculating return on investment. So, what is a return on investments?

What is a return on investments?

A total return on investments is a combination of the dividend income and price appreciation or decline over a period of time. Therefore, the return on investment formula is:

Return on investments

=

Capital appreciation or depreciation

+

Dividend income

What is a dividend?

Dividends are used to calculate return on investment. Dividends are distributions of a company's profits to its stockholders. Investors who invest in a stock will receive dividend income whenever the company declares it. Dividends are automatically sent to investors' brokerage accounts. There are two types of dividends: cash dividends and stock dividends.

Current yield

Current yield is also used in calculating return on investment. The current yield or dividend yield is the annual dividend divided by the current market value of the stock. Dividends are often paid quarterly, if at all. The current yield formula is:

Current yield (dividend yield)

=

Annual Dividend Current market value of stock