What is Capital Gains Yield?

Capital Gains Yield Formula

We use this formula when we want to know how much return we will get only based on the appreciation or depreciation of stock.

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Here, P0 = price of the stock when we invested in it, and P1 = price of the stock after the first period.

We look at the beginning stock price and the stock price at the end of the first period. And then, we will compare these two stock prices and find out the differences. Then we will find out the percentage of the differences based on the beginning stock price.

This formula can also be crafted as –

Capital Gains Yield Formula = (P1 / P0) – 1

Example

Let’s take a practical example to understand this concept in detail –

Ishita wants to see how much she has earned on a particular stock only based on capital appreciation/depreciation. She has seen that when she bought the stock, the price was $105. After two years, the stock price has appreciated to $120 per share. What is the Capital Yield on that particular stock?

All we need to do is to put in the data into the formula for capital gains yield calculation.

  • Capital Gains formula = (P1 – P0) / P0Or, Capital Gains = ($120 – $105) / $105Or, Capital Gains = $15 / $105 = 1/7 = 14.29%.

Using this formula, we understand that Ishita got 14.29% capital gains after two years of investment.

If the company offers a dividend, we can also calculate the dividend yieldCalculate The Dividend YieldDividend Yield is calculated by dividing annual dividend per share by current market price of the share. It is one of the most important metrics in deciding whether an investment into the share will result in the expected returns.read more and determine the total return on investments.

Use of Capital Gains Yield

For every investor, the capital gain is an important measure.

Many companies don’t pay dividends. In that case, the investors can only get the capital gain yield as the return on investments.

Since this Yield can be positive or negative, it affects the investors’ total returns.

For example, if Mr. A gets a total return of 25% on the stock, it can be the result of a negative capital yield of – 5% and a dividend yieldDividend YieldDividend yield ratio is the ratio of a company’s current dividend to its current share price.  It represents the potential return on investment for a given stock.read more of 30%.

So, here’s what we consider while calculating the total returnsCalculating The Total ReturnsThe term “Total Return” refers to the sum of the difference between the opening and closing value of all the assets over a particular period of time and the returns thereon. To put it simply, the changes in opening and closing values of assets plus the number of returns earned thereof is the Total Return of the entity over a period of time.read more – Capital and Dividend yield

We already know the calculation.

To calculate the dividend yield, we need to use the following formula –

Dividend Yield = Annual Dividend / Price

Capital Gains Yield Calculator

You can use the following Calculator

Calculate Capital Gains Yield in Excel

Let us now do the same example above in Excel.

It is very simple. All you need to do is to put in the data into the formula.

Capital Gains Yield Formula Video

This article has been a guide to capital gains yield and its meaning. We discuss the formula to calculate capital gains yield, practical examples, uses, and interpretations. You may also have a look at these articles below to learn more about financial analysis –

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