Formula for calculating the potential profitability of a society. How to calculate the profit of a business correctly
Analysis of the effectiveness of the organization is impossible without taking into account the indicators of profitability. An indicator characterizing the profitability of an activity or, in another way, economic efficiency- this is the concept of profitability.
This parameter demonstrates how efficiently the company uses the available economic, labor, monetary and natural resources.
For non-profit structures, profitability is the main indicator of work efficiency, and in commercial divisions, it is important quantitative characteristics calculated with greater accuracy.
Therefore, there are many types of profitability: profitability of production, profitability of products, profitability of assets, etc.
But, in general terms, these indicators can be compared with efficiency indicators, the ratio between the costs incurred and the resulting profit (the ratio of expenses to income). A business that generates profit at the end of the reporting periods is profitable.
Profitability indicators are required to implement financial analysis activities, identifying it weaknesses, planning and carrying out measures to increase production efficiency.
The types of profitability are divided into those based on a cost approach, a resource approach, or an approach that characterizes the profitability of sales.
Various types of profitability calculation pursue their own tasks and use many different accounting indicators (net profit, production cost, selling or administrative expenses, sales profit, etc.).
The profitability of the core business.
Refers to cost indicators, characterizes the effectiveness of not only the main activities of the company, but also the work related to the sale of products. Allows you to assess the amount of profit received per 1 ruble spent.
This takes into account the costs associated with the direct production and sale of core products.
It is calculated as the ratio between the profit from sales and the sum of the cost of production, which includes:
- the cost of goods, works, products or services sold;
- the cost of selling expenses;
- the cost of administrative expenses.
It characterizes the organization's ability to independently cover expenses with profit. The calculation of the profitability of an enterprise is used to assess the efficiency of its work and is calculated according to the formula:
Genus = Prp / Z,
Where Z is the cost, and Prp is the profit received from the sale.
The calculation does not take into account the time elapsed between production and sale.
Profitability of current assets.
The profitability of circulating (otherwise - mobile, current) assets shows the profit received by the organization from each ruble invested in circulating assets and reflects the efficiency of using these assets.
It is defined as the ratio between net profit (i.e. remaining after tax) and current assets. This indicator is intended to reflect the organization's ability to provide a sufficient amount of profit in relation to the used working capital.
The higher this value is, the more efficient the working capital is used.
Calculated by the formula:
Ptot = Chp / Oa, where
Rbsch is the total profitability, net profit is Chp, and Oa is the value of current assets.
Internal rate of return.
A criterion used to calculate the return on investment. This indicator allows you to assess the feasibility of investing in investment projects and demonstrates a certain discount rate with which net worth funds anticipated in the future will be zero.
This is understood as the minimum rate of return when the investment project under study assumes that the desired minimum rate of return or the cost of capital of the company will exceed the lower rate of internal rate of return.
This calculation method is not very simple and is associated with careful calculations. At the same time, inaccuracies made during the calculation can lead to final incorrect results.
In addition, when considering investment projects other factors are also taken into account, for example, gross profitability. But it is precisely on the basis of the calculation internal norm the profitability of the company makes investment decisions.
Profitability of fixed assets.
The presence of profit, as an absolute indicator, does not always allow you to get a complete picture of the efficiency of the enterprise. For more accurate conclusions, relative indicators are analyzed, showing the effectiveness of specific resources.
The work process of some enterprises depends on certain fixed assets, therefore, for a general increase in the efficiency of activities, it is necessary to calculate the profitability of fixed assets.
The calculation is carried out according to the formula:
Ros = Chp / Os, where
Ros is the profitability of fixed assets, Pp is the net profit, Os is the cost of fixed assets.
This indicator allows you to get an idea of what part of the net profit falls on the unit of the value of the organization's fixed assets.
Calculating the return on sales.
The indicator reflecting the net profit in the total revenue demonstrates the financial performance of the activity. Financial result in the calculations, various indicators of profit can appear, this leads to the existence of several variations of the indicator. Most often these are: profitability of sales in terms of gross profit, in terms of net profit and operating profitability.
Formulas for calculating the profitability of sales.
By gross profit: Ppvp = Bp / B, where Bn - gross profit, and B is revenue.
Gross profit is the difference between the proceeds received from sales and the cost of sales.
By net profit: Рчп = Чп / В, where Чп - net profit, and В - revenue.
Operating margin: Op = EBIT / B, where EBIT is pre-tax profit and B is revenue.
The optimal value of the return on sales depends on the industry and other characteristics of the enterprise.
So in organizations using a long production cycle, such profitability will be higher than those companies that operate with a high turnover, although their effectiveness may be the same.
Implementation efficiency can also show the profitability of products sold, although it takes into account other factors.
Profitability threshold.
It also has other names: critical volume of production or sales, critical point, break even. Indicates a level of business activity of an organization at which the total costs and total income are equal to each other. Allows you to determine the margin of financial strength of the organization.
Calculated by the following formula:
Pr = Зп / Квм, where
Pr is the profitability threshold, Зп - fixed costs, and Квм - gross margin coefficient.
In turn, the gross margin ratio is calculated by another formula:
Bm = B - Zpr, where Bm is the gross margin, B is revenue, and Zpr are variable costs,
Kvm = Wm / V.
The company incurs losses when the volume of sales is below the threshold of profitability and makes a profit if this indicator is above the threshold. It is worth noting that as the volume of sales increases, the fixed costs per unit of output decrease, while the variables remain the same. The profitability threshold can be calculated for certain types services or products.
Cost-effective.
It characterizes the payback of funds spent on production, shows the profit received from each ruble invested in production and sale. Used to assess the effectiveness of spending.
It is calculated as the ratio between the amount of profit and the amount of expenses that brought this profit. Such expenses are considered to be decapitalized, written off from the balance sheet asset presented in the report.
The return on cost indicator is calculated as follows:
Pz = P / Dp, where P is profit, and Dp is decapitalized expenses.
It should be noted that the calculation of cost-benefit indicators only demonstrates the degree of return on costs spent on specific areas, but does not reflect the return on the invested resources. This task is performed by indicators of return on assets.
Factor analysis of profitability.
It is one of the parts of financial analysis and, in turn, is divided into several models, of which the most commonly used are additive, multiplicative and multiple.
The essence of building such models is the creation of a mathematical relationship between all the investigated factors.
Additive are used in cases where the indicator will be obtained as the difference or the sum of the resulting factors, multiplicative - as their product, and multiples - when the factors are divided by each other to obtain the result.
Combinations of these models give combined or mixed models. For a full-fledged factor analysis of profitability, multivariate models are created, in which various profitability indicators are used.
Determining the return on a stock is very important both in the decision-making process regarding the purchase of an asset and in the management of investments.
A share is a security that is issued by a joint stock company at a certain moment. This document certifies the ownership of the share in the authorized capital of the corresponding JSC fixed in the documents.
Various enterprises, commercial (and not only) banks, various investment companies and any other exchange, industrial, commercial structures that were created in the JSC format.
Due to the presence several stages of existence valuable papers, their rather long circulation on the market, there are several stock prices, each of which plays a rather important role in their assessment: par, issue and market.
Determination of the nominal and market price
The profitability of a stock is determined by several parameters, but before determining it, it is necessary to understand other important indicators and calculation features. Nominal price- This is the cost, which is calculated by dividing the total amount of the authorized capital of the JSC by the number of issued securities.
Formula for calculating the nominal price:
NC = UK: N
Here: NC is the par price, MC is the authorized capital, N is the number of shares.
This type of price is a certain benchmark in determining the value of a security, serving as the basis for the formation of the market and issue value, as well as the level of dividends.
It is in proportion to the par value of the securities that the payments of the shares of shareholders are made in the event of the liquidation of a joint-stock company.
The price for which the investor is called acquisition cost.
In the case when securities are purchased from the issuer itself (the primary securities market), the cost is called the issue price, but when the transaction is concluded on the secondary market, we are already talking about the market price.
Market price based on 100 den. units of par is the rate, which is determined by the formula:
KA = RC x 100: NC
Here: CA - stock price, RC - its market price, NC - nominal.
The level of income from securities and its calculation
The profitability of a share is the sum of the growth in the market price of a security and dividends. The total annual profit is calculated as a percentage using the formula:
YES = (DG + (KC - NC)) x 100: NC
Here: YES - income from a share, DG - dividends for the year in rubles, CC - exchange rate at the time of calculations in rubles, NC - nominal or market price in rubles.
If the securities were purchased after the start of the calendar fiscal year or sold before its completion, then the profit is considered not for the whole year, but only for certain days and the formula looks like this:
YES = (DG + (KC - NC)) x B x 100: (NC x 365)
Here: B - time of holding the paper during the year in days.
In this case, the assessment of value and profitability is carried out in order to understand how much profit a shareholder can get from an increase in price. But the profit can be realized only if the share is sold at a new value. The profit in this case is equal to the capital gains and the possible income of the shareholder (potentially).
The profitability of a stock is characterized by two main factors:
- Dividends - a part of the profit of the joint-stock company distributed among the shareholders
- Sale - an opportunity to sell securities on stock exchange, having received more for them than was paid earlier
Dividend- this is a certain part of the distributed profit joint stock company in terms of one share. Dividends can be considered as a kind of premium to the investor for the risk to which he exposed his funds, investing them in the securities of this particular joint-stock company. In the case of buying Sberbank securities, the risks will be the same, while investing in a startup, they will be completely different, but they are always present.
Calculation of the dividend rate:
DS = DD: NC
Here: DS - indicator, DD - dividend income, NC - par value.
Profitability is the ratio of profit to invested funds.
The current profit rate is calculated using the formula:
TP = DD: ERC
Here: ERC - market or issue value.
But dividends are not the only source of returns on securities. For an investor, the main income is often the changing price of a share - the expectation that the stock exchange rate will rise significantly in the future. can provide good earnings.
Absolute size additional profit is the difference between the market price and the purchase price. Additional income is considered:
DD = HELL: CPU = (RC - CPU): CPU
Here: DD - additional profitability, AD - the absolute amount of additional profit, CP - purchase price, RC - market price.
The total income is considered as the sum of the dividend rate and the amount of additional income.
An important concept is expected stock return- the interest rate or the amount that the investor plans to receive after a certain period of time as a result of the contribution to the asset. This indicator is calculated on the basis of historical data on price changes or with a full set of probabilities.
If there is a full set of probabilities, then the expected return can be calculated using the formula:
Pi - the possibility of the i occurrence of a certain outcome of events
ki - profitability under these conditions
n - number of event outcomes
But in real life financial market investors most often take into account historical data. Then the expected profitability is calculated as the arithmetic mean:
ki - profitability of the security in period i
n - number of observations
Assessment of the attractiveness of securities
There are certain assets in the securities market, the profitability of which can be fairly easily predicted. Thus, the price of Yandex assets is unlikely to change significantly, but the profitability of Gazprom shares, due to some circumstances, is not so well predictable. To assess the prospects of an investment, it is necessary to take into account several factors.
1) First of all, take into account real market value papers- the most likely amount for which a share can be exchanged by concluding a deal with a well-informed, knowledgeable seller. Both parties - the seller and the buyer - must have sufficient information about the asset and act openly.
When the share price is much lower than the real one (calculated according to all formulas and estimated in accordance with the issuer's prospects), you need to buy the asset, if it is valued higher, it is advisable to sell quickly. So, it was quite easy to trace that the profitability of some stocks Russian companies in 2016 was much lower than expected due to certain events and economic shocks. At the same time, undervalued assets showed unexpected gains and gave good holders.
2) When planning to buy securities of a company / enterprise, you need to evaluate growth prospects: real and expected income, competitiveness and prospects of services / goods, the possibility of expanding activities and "capture" new markets, the level of qualifications of leaders and managers, etc.
When buying shares, the following indicators are taken into account:
- Market value (real at the moment)
- Economic value (expected)
- Nominal price (official, established when the articles of association were approved)
Investors are often wary of soaring assets. But do not be afraid that now only a fall awaits them: for example, Apple shares are growing constantly and after each new take-off, when it seems that there will be no rise in price, the numbers again prove the opposite. Therefore, in this case, it is necessary to analyze the reasons for the rise in price and identify the prospects.
3) Pay attention to capitalization ratio(total price of securities) to profit (P / E). The higher the ratio, the more expensive the share is in comparison to the company's profit. If a company demonstrates a high performance, this indicates that investors can count on the rapid growth of the business.
It must be remembered that in different sectors of industry, economy this indicator can be very different. If we analyze the dividend yield Russian shares in 2016, you can see completely different numbers and they do not always speak about good and bad financial situation in a company, it is often just about different spheres of activity: raw materials companies have low figures, technological ones - high ones.
4) Investors also look at the ratio of capitalization to free financial flow (P / CF) - money that remains with the company after all expenses have been paid. If the indicator is low, then the business is healthy and the dividends will be good; if it is high, this indicates that there are problems. On the other hand, very good indicators may indicate that the business is not being developed, and all profits are taken from the project.
5) Another important criterion is attitude capitalization to book price assets (P / BV), which is assets minus liabilities and debts. So, if the capitalization is 2 million, and the assets are 1 million, then P / BV will be 2, which is not a bad figure.
6) Calculation of capitalization in relation to revenue (Price / Sales) can be useful - many investors prefer companies with very large revenues, but this is not always a guarantee of high income.
To be able to get revenue from investments in securities, you need to know the market well, look for undervalued assets, predict changes in advance. It is advisable to diversify the investment portfolio by investing in securities of companies operating in different sectors of the economy. If it is difficult to manage assets on your own, you can contact the managers and join the fund.
A share is a security issued by a joint stock company and certifying the ownership of a share in the authorized capital of a joint stock company. The issue of shares is carried out upon: - the establishment of a joint-stock company and the placement of shares among its founders; - privatization of state and municipal enterprises through corporatization and subsequent redemption of shares from the state property fund; - an increase in the size of the initial authorized capital of the JSC. Shares testify to the contribution of their holders - shareholders - to authorized capital JSC. Shareholders are collective owners of the company's property, which ensures that they receive part of the profit from the activities of the joint-stock company. By putting money in stock, the investor acquires the following rights: - to own a part of the distributed profit of the joint-stock company, i.e. dividend; - participate in the management of the joint stock company; - receive part of the value of the company's assets upon liquidation; - to acquire new stock of the given society. A distinctive feature of shares is that they do not have a fixed circulation period, their owners receive dividends as long as the joint-stock company is successfully operating. The class of shares is very diverse. - Distinguish stock by the issuer, i.e. issued by a joint stock company, stock exchange, bank, investment fund and company. - In terms of shareholders' rights stock are divided into ordinary (simple) and privileged. An ordinary share gives one vote when deciding issues at a meeting of shareholders and participates in the distribution of net profit only after the payment of income on bonds and dividends on preferred shares. The amount of dividends per ordinary share is determined general meeting shareholders and can be increased or decreased depending on the results of the company's financial activities. If the position of the joint-stock company is unstable or the development needs require the attraction of large funds, then the dividend on ordinary shares may not be paid, especially in the first years after the creation of the joint-stock company. A preference share does not give the right to vote, unless otherwise provided in the charter of a joint-stock company, but unlike an ordinary share, it brings a guaranteed dividend and has an advantage in the distribution of profits and liquidation of the company. The size of the fixed dividend on preferred shares is set upon issue, and current settlements with their holders are made before settlements with the holders of ordinary shares. Privileged stock can be converted into common ones under the conditions specified at their issue, and vice versa. - By the way of motion reflection stock are divided into registered and bearer papers. Owner details stock are registered in the register of a joint stock company. Bearer shares can be bought and sold without the necessary registration of the new owner. The liquidity of the last securities is higher, their transition from hand to hand concerns only two - the buyer and the seller and depends only on whether they have agreed on a price. There are no additional conditions and formalities. However, despite the fact that stock to bearer significantly simplify and reduce the cost of the circulation process, they have serious drawbacks. Anonymity is poorly combined with the exercise of one of the basic rights of holders of ordinary shares - the right to participate in the management of a joint-stock company. Anonymous cannot receive a personal written notification of the convocation of a general meeting, which is sent to each of the registered shareholders. If a joint-stock company does not have information on the personal composition of its participants, then it also does not have information on the structure of ownership of the share capital. It is difficult to manage blindly without controlling the flow of capital and the concentration of securities in the hands of individual investors. By liquidity level stock are subdivided into high quality, medium and low quality securities. The distribution of shares by liquidity level is the most important issue for an investor, but also the most difficult one, since the level of liquidity is influenced by many factors, both dependent on the issuer's activities and not dependent.
Stock returns Is an indicator that assesses how much income the shares have brought us since the moment of their purchase. In general, it is calculated as the difference between the received capital and the initial, divided by the initial capital. High profitability characterizes in many ways high risks. It should be borne in mind that the profitability can be either positive (i.e. profit) or negative (loss).
Shares allow you to bring profit to their owner in two ways:
by increasing the market value
through periodic payments dividends
By shaping long-term portfolio, we must make it profitable first of all, liquidity and reliability are less important here, although they are also significant. And for these purposes, shares are usually used.
Profitability of shares of different issuers
Based on your priorities: getting the maximum income while owning shares or waiting for several years to then sell our assets several times more expensive, we choose different strategies.
In the first case, we choose stocks of companies with highest dividend yield(usually it is preference shares, see the list here), in the second, the potential profitability is assessed based on fundamental analysis and the securities with the highest growth potential are selected. If you find it difficult to carry out such an analysis, just copy the structure of the portfolio of one of the profitable (see profitability indicators for the interval of 3-5 years) mutual funds. Or invest in an index mutual fund - this is the best solution for you.
However, experienced investors prefer to choose stocks, the value of which may increase significantly in the future and the income from their sale will significantly exceed any dividends.
Types of stock returns:
The following types of profitability are distinguished:
Example: Ivan bought common shares Sberbank on October 3, 2011 at a price of 68.25 rubles apiece, and on February 27, 2012 sold at 101.6 rubles. Let's calculate what final return he received, and also calculate the annual return on stocks for a given period of time.
Find the data you need and plug it into the formula. Determine the par value of the bond, the price paid (per bond), each coupon payment, and the number of coupon payments to maturity. Plug the data into the formula P = C ∗ ((1 - (1 / (1 + i) n)) / i) + M / ((1 + i) n) (\ displaystyle P = C * ((1- (1 / (1+ i) ^ (n))) / i) + M / ((1 + i) ^ (n))), where P is the price paid for the bond; C - coupon payment; i - yield to maturity; M is the par value of the bond; n - total amount coupon payments.
- For example, an investor bought a bond with a par value of 100 rubles for 95.92 rubles. The interest rate is 5% and is charged every 6 months and has a maturity of 30 months.
- The coupon payment, paid every six months, is equal to 2.50 rubles ( 100 x 0.05 x 0.5 = 2.5 (\ displaystyle 100x0.05x0.5 = 2.5)).
- If the maturity is 30 months and coupon payments are made semi-annually, then the number of coupon payments is 5 (30/6 = 5).
- Plug in the data into the formula: 95.92 = 2.5 ∗ ((1 - (1 / (1 + i) 5)) / i) + 100 / ((1 + i) 5) (\ displaystyle 95.92 = 2.5 * (( 1- (1 / (1 + i) ^ (5))) / i) +100 / ((1 + i) ^ (5))).
- Now go through trial and error. To do this, substitute multiple values for i to find the corresponding price paid.
Estimate the interest rate by looking at the relationship between the price paid and the yield to maturity. No need to guess the meaning interest rate... In our example, the bond is being sold at a discount, so the yield to maturity will be higher than the interest rate. Since the interest rate is 5%, plug in numbers greater than this value in the formula and find P.
- Remember that in our example, the interest rate is charged every six months. That is, the annual interest rate must be divided by 2.
- In our example, consider 6 (one more than 5) as the annual interest rate. Substitute i = 3 in the formula (6/2 = 3, since the interest rate is charged every six months) and you get Р = 95 rubles.
- This value is greater than the price actually paid.
- Now, as the annual interest rate, consider 7. Substitute i = 3.5 in the formula (7/2 = 3.5, since the interest rate is charged every six months) and you get Р = 95 rubles.
- This value is less than the price actually paid, but it is now clear that the exact yield to maturity can be calculated at some value of the annual interest rate, which lies between 6% and 7%.
Plug in multiple values for the annual percentage rate that fall between 6 and 7 into the formula. Substitute 6.9% first and then decrease the interest rate by one-tenth. This is how the exact yield to maturity can be calculated.
- For example, substitute i = 3.45 (6.9 / 2) in the formula and get P = 95.70. This value is close to real, but still not equal to it.
- Now substitute i = 3.4 (6.8 / 2) into the formula and get P = 95.92. This value is equal to the real one.
- The price paid for the bond is found, that is, the exact value of the yield to maturity is 6.8%.
How to calculate the return on investment?- this question interests every investor. The main thing is earning income, so it is always interesting how much you earned and what your profitability is. Compared by yield, stocks, bonds, deposits, real estate and many others. Any investor, trader or manager is interested in its effectiveness. Banks, management companies and brokers, when advertising their services, like to lure customers high interest rates... Profitability is one of the most important indicators by which you can assess the effectiveness of investments and compare with other investment alternatives. So, let's figure out what the return on investment is and how to calculate it.
Profitability(rate of return, rate of return) is the degree of increase (or decrease) invested amount for a certain period of time. Unlike income, which is expressed in nominal terms, that is, in rubles, dollars or euros, the yield is expressed as a percentage. Income can be received in two forms:
- interest income is interest on deposits, coupons on bonds, rent on real estate;
- an increase in the value of purchased assets - when the selling price of an asset is higher than the purchase price - this is real estate, gold, silver, oil and other commodity assets.
Assets such as real estate, stocks and bonds can combine two sources of income. The calculation of profitability is needed to assess the growth or decline of investments and is a criterion for assessing the effectiveness of investments.
How to calculate the return on investment?
V general view profitability is always calculated as profit (or loss) divided by the amount invested, multiplied by 100%. Profit is calculated as the amount of the sale of the asset - the amount of the purchase of the asset + the amount cash payments received during the period of ownership of the asset, that is, interest income.
Formula 1
An example of calculating the return on investment.
We bought a share at a price of 100 rubles (investment amount), sold a share at a price of 120 rubles (sale amount), and received 5 rubles in dividends (cash payments) during the period of holding the share. We calculate the profitability: (120-100 + 5) / 100 = 0.25 * 100% = 25%.
Formula 2
There is a second formula, according to which the profitability is calculated as the sum of the sale of the asset + the amount of cash payments divided by the amount of investments, minus 1, multiplied by 100%.
An example of calculating profitability: (120 + 5) / 100 - 1 * 100% = 25%.
How to calculate the yield as a percentage per annum?
The formula for calculating simple returns does not take into account such an important parameter as time. 25% can be received in a month, or in 5 years. How, then, is it correct to compare the returns on assets with different holding times? For this they count. The annual percentage rate of return is calculated in order to compare the performance of assets with different holding times against each other. The rate of return per annum is the rate of return reduced to a single denominator - the rate of return for the year.
For example Bank deposit gives 11% per year, and some shares brought 15% for 1.5 years of ownership, which was more profitable? At first glance, the shares, after all, they brought more profitability. But the investor owned them for more than six months, so their profitability seemed to be stretched over time compared to the deposit. Therefore, in order to correctly compare the deposit and the shares, the profitability of the shares must be recalculated as a percentage per annum.
To do this, a 365 / T coefficient is added to the formula, where T is the number of days the asset is owned.
An example of calculating profitability:
We bought a share for 100 rubles, sold it 1.5 years later for 115 rubles. 1.5 years is 1.5 * 365 = 547 days.
(115-100) / 100 * 365/547 * 100% = 10%. In this case, the deposit turned out to be slightly more profitable than shares.
How forex, asset management companies, brokers and banks manipulate annual returns.
In any advertisement of profitability, pay attention to the footnotes, specify what profitability is indicated in the advertisement and for what period. For example, advertising sounds like a yield of 48% per annum. But it can be received in just one month. That is, the company earned 4% in a month and now proudly advertises a product that gives 4 * 12 = 48% per annum. Even you, having earned 1% per day on the stock exchange, can boast that you have earned 365% per annum) Only this profitability is virtual.
How to calculate the average annual return
The assets may be held for several years. At the same time, most assets do not grow by the same amount. Assets such as stocks can fall or rise by tens or hundreds of percent per year. Therefore, I would like to know how much your investments have grown on average per year. How do you calculate the average annualized return? The average annual return is calculated by root extraction using the formula:
Formula 1
where n is the number of years the asset has been owned.
An example of calculating the profitability if we owned a share for 3 years:
3√125/100 — 1 ∗ 100% = 7,72%
Formula 2
Another formula for calculating the average annual return is through exponentiation.
The return on this formula is very easy to calculate in Ecxel. To do this, select the DEGREE function, in the Number line enter the quotient of division 125/100, in the Degree line enter 1 / n, where instead of n specify the number of years, add -1 outside the brackets.
In a cell, the formula will look like this = DEGREE (125/100; 1/3) -1... To convert a number to a percentage, select the "Percentage" cell format.
How to calculate the average annual return if the annual returns are known?
If you know the return on the asset by years, then the average annual return can be calculated by multiplying annual returns and extract the root from the work in a power equal to the number of years.
First, convert the percentages to numbers.
For example, the first year the yield is + 20%, the second year is -10%, the third year is + 30%. In numbers, it will be like this: 1.2, 0.9, 1.3. The yield is 3√1.2 * 0.9 * 1.3 - 1 * 100% = 11.9%.
These formulas take into account the effect compound interest. Simple formula the calculation of the yield does not take this into account and overestimates the yield, which is not entirely correct.
Now you can calculate the profitability of your investments not only as a percentage per annum, but also on average over several years. Next time I will write how it is correct and very simple.
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