How To Calculate Annualized Return From Monthly Returns In Excel

Understanding how to calculate annualized return from monthly returns is essential for investors looking to assess their portfolio's performance over time. Excel, with its myriad of financial functions, can facilitate this calculation.

This guide will walk you through the step-by-step process of transforming monthly returns into annualized figures using Excel. Moreover, we'll explore why Sourcetable offers a more streamlined and user-friendly approach for this financial analysis.

Calculate Annualized Return from Monthly Returns in Excel

To calculate the annualized rate of return from monthly returns in Excel, you can use various methods, each suitable for different scenarios. The annualized return is a key measure for comparing investment performance.

Future Value Schedule Method

Utilize the FVSCHEDULE function for a straightforward calculation of annualized returns. This function compounds the monthly returns to project the final investment value. The formula structure is =FVSCHEDULE(1, range_of_returns)^(12/n)-1, where n is the number of months.

Product of Monthly Returns

Another option is the product method, which involves multiplying one plus each month's return, successively. The formula structure is =(PRODUCT(1+range_of_monthly_returns)^(12/n_months))-1. This method directly calculates the compounded return over a year.

Large Table Method

The large table method, though less efficient, is beneficial for rolling returns. Construct a table with accumulated returns and derive the annualized returns using a formula similar to the product method. This approach is useful for a visual representation of returns over time.

Array Method

For a more advanced Excel user, the array method can be employed. This involves using an array formula to calculate the compound return. The formula is entered with CTRL+SHIFT+ENTER and computes the annualized return from a series of monthly returns.

Choose the method that best fits your data's nature and your proficiency with Excel functions. For regular intervals and single-period cash flows, the IRR or XIRR functions are not suitable. The ARR or CAGR can be calculated using the geometric average of the periodic returns.

Excel vs. Sourcetable: Streamlined Data Integration and AI Assistance

Excel has been the go-to spreadsheet tool for decades, offering robust functionalities for data analysis. However, Sourcetable specializes in aggregating data from multiple sources into a single, cohesive interface. This integration eases the challenges of managing disparate data sets, positioning Sourcetable as a seamless solution for modern data consolidation needs.

Unlike Excel, Sourcetable boasts an AI copilot, revolutionizing user interaction with spreadsheets. This AI-powered assistant simplifies complex tasks by generating formulas and templates through conversational commands. This feature not only enhances productivity but also makes advanced data manipulation more accessible to users with varying skill levels.

Sourcetable's innovative chat interface is a game-changer in the realm of spreadsheets. It offers a stark contrast to Excel's traditional formula creation approach, providing a more intuitive and time-saving experience. Users can leverage AI assistance to streamline workflow and focus on strategic analysis rather than formula syntax.