A.I.M. Users Bulletin Board

[Conrad]

Toof, that formula does not give a good representation of Yield %.

(Ending balance - (starting balance + amount added during year) ) / starting balance = return %


I presume here you mean here "added equity". . .(Or did you mean added cash?)

Suppose this is what you did:

Start B = 10000
End B = 15000

Added during the year = 5000

You get (15000-15000)/10000 = 0

With this nobbody has any idea what it means.

Suppose you added the "value of 5000" very close to the end of the year. Then the growth of the 5000 in the End Value is almost all due to the 10000 Start Value:

Real Yield = 5000/10000 = 0,5. . .50 %: Not a bad Gain!

If however you added the 5000 close to the start you have this:

Real Yield = 0/15000 = 0 . . . 0 %: Which is a Break Even!

What you are doing tells you nothing unless you work into the Yield Calculation the time at which you added value to the Investment.

If you put in the extra 5000 after 1/2 year then your Average Investment for the whole year = 12500 and the then

Real Yield = (15000 - 12500)/12500 = 0,2. . . 20%: Not bad either.


You might as well use the Time Average Investment Formula if you are interested in the yield percentage. If you do not care about that then you might as well simply look at the profit and not bother to calculate a percentage.

(Money Into Equity) - (Value of Equity @ Year End) = Gain

You do not need to know more IF you do not want to know the performance of your investment in %.