Calculate Monthly Returns in Excel

Introduction

Mastering Excel to monitor financial performance is critical for both personal and professional finance management. Particularly, calculating monthly returns in Excel can provide deep insights into investment performance over time. By breaking down the process step-by-step, this guide aims to empower users from novice level to seasoned financial analysts to accurately evaluate monthly investment returns using Excel.

This tutorial will also introduce how Sourcetable enhances this entire process. Sourcetable’s AI-powered spreadsheet assistant simplifies complex calculations and enhances productivity. Experience it yourself by signing up at app.sourcetable.com/signup.

How to Calculate Monthly Returns in Excel

Understanding Monthly Returns

Monthly returns provide insights into the performance of investments over each month. Calculating these returns in Excel requires a specific set of tools and formulas.

Required Tools and Sources

To begin, ensure you have access to market data, preferably from reliable financial sources like Yahoo Finance. Excel will be the primary tool for calculating and analyzing the returns.

Step-by-Step Calculation

Start by calculating daily returns using the formula (B3)/B2. This step is critical as it establishes the basis for more comprehensive monthly calculations.

Next, compile these daily returns by month. Use Excel's powerful ArrayFormula function, pairing it with text, unique, and filter functions to categorize and manage the data efficiently. This setup helps in capturing the unique months from your dataset.

Finalizing Monthly Returns

To compute the monthly returns, multiply the daily returns for each month. Then, apply the sumif function to aggregate these values by month. For instance, use the formula: =sumif(text(filter(A2:A,A2:A<>""),"MMMM"), unique(text(filter(A2:A,A2:A<>"")),"MMMM")),F2:F), which calculates the sum of monthly returns based on the unique months identified earlier.

Optimizing Returns Analysis

Utilize Excel's average and geometric functions to further analyze the monthly returns. These functions are beneficial for understanding average performance and the compounding rate of returns over time.

By following these detailed steps and utilizing the appropriate Excel functions, calculating monthly returns can be both efficient and accurate, providing valuable insights into investment performance.

How to Calculate Monthly Returns in Excel

Initial Calculation of Daily Returns

To begin calculating monthly returns in Excel, first compute the daily returns. Input your historical stock data with the closing prices in consecutive cells (e.g., column B). Use the formula =(B3/B2) to get the daily return from day to day. Place this formula in a new column adjacent to your closing prices and drag down to apply it to other cells.

Grouping Daily Returns by Month

Once daily returns are calculated, group these returns by month. Excel's ArrayFormula can efficiently perform this task. Utilize the formula =ArrayFormula(multiply(unique(text(filter(A2:A,A2:A<>""), "MMMM")), sumif(text(filter(A2:A,A2:A<>""), "MMMM"), unique(text(filter(A2:A,A2:A<>""), "MMMM")), F2:F))). This formula filters your data by month, sums the daily returns for each month, and then multiplies them to obtain the monthly return.

Applying Advanced Excel Functions

To further analyze the monthly returns, use Excel's built-in functions like AVERAGE and GEOMEAN. The AVERAGE function can determine the simple average of these monthly returns, providing a straightforward analytical perspective. Meanwhile, the GEOMEAN function is ideal for computing the geometric mean, offering insights into the compounded rate of return over multiple periods.

By following these steps and utilizing Excel’s powerful functions, you can efficiently compute and analyze the monthly returns from your investment data.

How to Calculate Monthly Returns in Excel

Example 1: Simple Price Change

Calculate the monthly return by determining the percentage increase in price from the beginning to the end of the month. Use the formula ((End Price - Start Price) / Start Price) * 100. Input these values in Excel and apply the formula to derive the percentage change.

Example 2: Adding Dividends to the Return

Include dividends received during the month. Adjust the formula to ((End Price + Dividends - Start Price) / Start Price) * 100. This formula accounts for total returns, reflecting both price changes and dividends in the calculation.

Example 3: Monthly Returns for Multiple Months

To calculate returns for several months, use the formula recursively. Define each month's start price as the previous month's end price. Apply the simple price change formula or the dividend-adjusted formula for each month individually.

Example 4: Annualizing Monthly Returns

To project a single month's return over a year, compound the return using the formula ((1 + Monthly Return)^12 - 1), where Monthly Return is input as a decimal. This calculation provides an annualized return percentage, assuming monthly returns are reinvested.

Example 5: Using Excel Functions

Utilize Excel's capabilities for faster calculations. Enter price and dividends data into a sheet, and use built-in functions like =(B2 + C2 - A2) / A2, where A2 is Start Price, B2 is End Price, and C2 is Dividends. This approach minimizes errors and streamlines computations.

Master Monthly Returns Calculation with Sourcetable

Calculating monthly returns in Excel can be complex, but Sourcetable simplifies this with its powerful AI capabilities. Sourcetable's AI assistant transforms tedious spreadsheet calculations into seamless, efficient processes. This feature is revolutionary for finance professionals and students alike.

How Sourcetable Simplifies Financial Calculations

Sourcetable goes beyond traditional spreadsheets by incorporating an AI that understands and executes complex financial calculations instantly. For example, to calculate monthly returns, simply ask the AI assistant, and it computes ((P_t / P_{t-1}) - 1) × 100%, where P_t and P_{t-1} are the investment prices at time t and t-1 respectively. Sourcetable displays results directly in the spreadsheet and explains the calculation method via a chat interface.

This integration of AI not only guarantees accuracy but also enhances learning and productivity, making Sourcetable invaluable for educational and professional settings.

Learn and Work More Efficiently with Sourcetable

Whether you are studying for an exam or crunching numbers at work, Sourcetable’s AI assistant serves as both a calculator and a tutor. It explains complex formulas in understandable terms, enabling users to grasp financial concepts more quickly and thoroughly. Sourcetable is not just a tool for calculations, but a comprehensive educational resource.

Embrace the power of AI in your financial analysis. Try Sourcetable today to see how it can enhance your productivity and understanding of financial calculations.

Conclusion

Calculating monthly returns in Excel involves specific formulas and data management. Input the stock's closing prices, use the formula ((P1/P0) - 1) * 100 to find the percentage change, and adjust these values for dividends and splits to maintain accuracy.

Efficiency with Sourcetable

Sourcetable, an AI-powered spreadsheet, streamlines these calculations. This tool enables you to perform calculations on AI-generated data, further enhancing the precision and efficiency of your financial analysis.

Explore the robust features of Sourcetable by visiting app.sourcetable.com/signup to sign up for a free trial. Experience how Sourcetable can transform your approach to calculations and data management.