Stock Return is a level of profit that investors can later enjoy from the investments they have made previously. In every investment, of course we always want what profit will be obtained later. Especially if investing in land, buildings, commodities, or others. Including stocks. There is a term Stock Return that is usually mentioned when it comes to the profit itself. This time, we will discuss what Stock Return is.


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If based on capital market theory, stock returns are the rate of return that investors will receive from stocks that have been traded on the capital market itself. For more details about this stock return, you can read the explanation of the article below. However, don't forget to register yourself as an IB or by inviting your friends to join GIC and get various benefits through the program!



What is Stock Return?

Stock return is the difference between the selling price of the stock and the price at the time of purchase, plus the dividends that will be obtained from the stock investment. This definition can also be interpreted as a level of profit that can be enjoyed by investors from the investment they make. In the stock market, it will not always promise a definite return for investors.

However, there are several components of stock returns that allow investors to gain profits, namely dividends, bonus shares, and capital gains. These return components will reflect the cash flow or income that can be obtained in a certain period from an investment. Yield can only be zero and positive. There is also capital gain or loss. This component can be interpreted as an increase or decrease in price from a profit or loss for investors. This capital gain can be a minus, zero, or positive number.

There are several factors that can affect stock returns, namely macro factors which will consist of macroeconomic factors, and also non-economic macro factors. Macroeconomic factors include inflation, foreign exchange rates, interest rates, fuel prices in the international market, economic growth rates, and regional stock price indices. Meanwhile, non-economic macro factors include social events, political events, and international political events. In addition, there are also microeconomic factors that will include factors from within the company itself.
 
Because stock returns are the difference between the selling price and the purchase price of shares that have been added to the dividend, then from the results of the difference, there are two possibilities that can arise, namely capital gain and capital loss. If what you get is a capital gain qualification, then you will get a profit from the sale of the shares. Conversely, if the result that appears is a capital loss, it means that you will experience a loss from the stock trading that has been done.


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Types of Stock Returns

There are two types of stock returns as follows that have been widely known by investors, namely realized returns and also expected returns. The following is an explanation of the types of stock returns:

Return Expectation

Expected stock returns are a form of return that investors expect to obtain in the future. Unlike the realized return that will be explained later, this type of expected return is a form of return that has not yet occurred. The expected rate of return is a form of profit that investors will obtain from their investment in an issuer company in the future. This rate of return will be greatly influenced by the various prospects of the company concerned in the future. An investor will certainly expect a certain amount of return in the future. However, when the investment has been completed and the profit obtained has actually been obtained, the value of the profit will be considered a realized return.


Return Realization

Realized stock returns or in English realized returns are a form of returns that have occurred. This return can be used as a basis for determining expected returns and potential risks that will be experienced in the future. This type of return on investment will be calculated based on historical return data. This realized return is very important because it can be used to assess a company's performance and can be an indicator in assessing expected returns in the future. Before continuing to discuss the formula and how to calculate stock returns, make sure to also download the GICTrade application via the Google Play Store or App Store!

Formula and How to Calculate Stock Returns

In some cases, to calculate stock profits, it is more common to use daily stock returns. Given that there is a lot of data that will be involved, it is certainly better to do this method of calculating stock returns using Excel which can be done automatically. In calculating the stock return of the IHSG (Composite Stock Price Index), the process is the same.

IHSG stock price data that is commonly used is data for one year. So to calculate it is by looking for the IHSG return per day, then looking for the average profit for one year. For stock players, they must get IHSG return data in the past year, then compare it with the stock returns obtained. If the profit of the selected stock can exceed the value of the IHSG profit, then it can be considered that the stock return has a good value. However, it could be just a coincidence.
 
So, when you find that the increase or decrease in the selected stock will be greater when compared to the IHSG return, then don't immediately draw conclusions quickly. Because there are other indicators that you also need to pay attention to, such as the fundamentals of the company that is issuing the stock. In accordance with the desired goal, you can calculate the stock return in the annual, 6-month, 4-month, monthly, weekly, or daily period. In order not to be affected by noise, investors should not calculate the profit from playing the stock too often, especially if it is in the monthly or daily period. You need to remember, stock investment is a long-term game, it could be that price changes in the short term are only due to market volatility alone, not because there are fundamental changes.
 
The way to calculate stock returns in financial reports can also be done quite simply, which is the average stock price this month minus the stock price in the previous month, then divided by the stock price in the previous month. You can also do the calculation by dividing the stock price this month by the stock price last month and then subtracting 1 from the acquisition. For the first data, it will usually be made blank because there is no data before that.
 
This data will certainly be different from the return of equity even though the two seem similar. If you are an investor who prioritizes dividends, then combine it with how to calculate dividends to get a complete picture of the profit. You can differentiate the calculation of the return itself according to its type, namely realization and expectation. To be able to calculate the return on the shares you buy or own, you can try the following formula. The stock return formula is:


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Realized Stock Return Formula

The analysis data of this realized stock return can be obtained from the calculation of the difference between the individual stock price in the current time period and the individual stock price in the previous period. This calculation can be done without including dividends which have the following realized stock return formula: Pi,t-Pi,t-1 Ri,t = Pi,t-1 Where Ri,t is the return of stock i at time t, Pi,t is the price of stock i in period t, and also Pi,t-1 is the price of stock i in period t-1.

Expected Stock Return Formula

This expected return is the hope for investors in the future. To calculate it, you can use the expected stock return formula as follows. E(Rit) = Rmt Where E(Rit) is the expected stock return rate on day t, and Rmt is the market return rate in period t.

Stock Return Formula in the Form of Capital Gain and Capital Loss

There is also another formula in calculating a stock return, namely the return in the form of capital gain and also capital loss. The formula for stock returns for capital gain and capital loss is as follows. Stock return = (selling price - purchase price) + dividends Where the return is in the form of profit if it is positive and will be in the form of loss if it is negative.

also read : 

What is Capital Gain? Definition, Examples, and Formulas

Factors Affecting Profit Level

Factors that will affect this level of profit include the value of the price difference, whether positive or negative, which will be affected by a number of risks. These factors have been divided into macro and micro factors. For beginners in stock investment, also know the factors that influence it, namely:

Macro Factors

Stock price movements, which will also have an impact on the acquisition of price differences, are influenced by macro factors, both macroeconomic and macro non-economic. The main macroeconomic factors are inflation, the rupiah exchange rate, central bank interest rates, world oil prices, economic growth, and regional stock price indices. Meanwhile, non-economic macro factors include domestic political events, social events, or political events regionally and globally.


Micro Factors

For these micro factors will affect the price difference, which is obtained from within the company. For example, financial or non-financial conditions, fundamental information, to technical information. There is also fundamental information from within the company, namely dividends, sales achievements, financial conditions, and also company size. While for this technical information comes from outside the company such as economics and politics. After knowing what factors will affect the level of stock profits, take the time to do a Preliminary Test to be able to measure how far your expertise is in trading.

Benefits of Knowing Stock Returns

Understanding and also measuring stock returns will be very important for an investor. Basically, investment itself requires a lot of consideration and calculation. The benefits of knowing stock returns are:

1. Helps to measure the profits you have

Stock investors will buy and sell stocks in order to gain profits. By calculating stock returns, both for companies and investors, you can get basic details about the profits or losses that occur.

2. As a consideration and data for making investment decisions

By calculating the stock returns, you can also use it as a consideration as well as data to be able to make decisions in investing in the future. This can also be a history to be able to compile expectations of stock trading activities which are more profitable than before.

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Difference Between Stock Returns and Dividends

As explained above, stock returns are the difference between the selling price of shares and the price at the time of purchase, plus the dividend value that has been obtained from a stock investment. This definition can also be interpreted as the level of profit that investors can enjoy from their investments. However, in the stock market, it cannot always promise a definite return for its investors.
Meanwhile, dividends are returns on capital investments intended for investors in long-term shares. These returns will come from the profits that have been obtained by the company, where some of these profits will be distributed to its investors as dividends. In another explanation, the meaning of stock dividends is a dividend payment that can be made in the form of additional shares and which is not made in the form of cash payments. The company can also decide to distribute this type of dividend to shareholders if the company's cash availability is limited.

For dividends that will be distributed by the company to shareholders can be calculated based on the difference between the company's profit minus retained earnings. This retained earnings is the profit that is saved by the company to finance future expansion. So from the explanation, dividends can be one of the components of stock returns that will allow investors to gain a profit.

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Difference between Stock Return and Stock Price

This stock price is often used as a reflection of a company's performance. A company with a stock price that continues to increase will be assessed by investors as having good performance, so that it will attract their interest in being able to buy shares in the company. According to Jogiyanto, the stock price in question is the price at which the shares will be traded on the stock market. The stock price is the price of shares on the stock exchange market which is determined by market players based on the demand and supply of the shares concerned on the stock exchange market.
The more demand from investors for a stock, the more the stock price will continue to increase, and vice versa. Meanwhile, according to Jogiyanto (2017) for Stock Return is the result that will be obtained from investment in the form of shares. This return can be in the form of a realized return that has occurred or an expected return that has not occurred, but which is expected to occur in the future.
The actual return is the return that has occurred. This realized return is calculated based on existing historical data. The realized return is important because it can be used as one measure of a company's performance. This historical return can also be useful as a basis for determining expectations (expected return) and also future risks.
Expected return is the return that investors expect to receive in the future. Unlike the realized return which has already occurred, this expected return has not yet occurred. After knowing what stock returns are, now you can calculate the profit according to the formula explained above.

That way, you will know how much profit you have earned when you have invested in stocks yourself. For those of you who are still confused about trading, consult your trading through Trader Assessment with GIC! In addition to these benefits, knowing stock returns will also be good for you to be able to consider data and make investment decisions later. If you are satisfied with the explanation of the article or services from GIC, please fill out an internal survey so that our team can improve the existing quality.