Calculation check

JohnRo

Sometimes I feel like I have brain damage.

I've done the following calc and called it sales profit, now I 'm doubting myself. Idea being to split returns from generated income and net returns from disposals.

The following are just tax cost numbers related to BEE but they could be anything, negative is capital in, positive is capital out or still invested.

2015-12-30 -1,845.31
2016-10-04 +2,486.00
2016-11-25 -2,943.14
2017-01-31 +360.72
2017-04-09 +2,650.73

This gives a net +£790 which I'm calling sales profit, is that nonsense?

grey_gym_sock

by "still invested", you mean that the last figure is the market value of your current holding in BEE?

makes sense, though i'd perhaps call the total "capital return". (so that + dividends = total return.)

JohnRo

Thanks GGS, the last figure is the tax cost, of what I still hold. None of the numbers relate to the valuation.

Current valuation in this example is 2,935.68

The 2,650.73 figure is the (tax) cost of my remaining stake in the investment, this is where I started to doubt the calculation.

That obviously gives a paper gain of 284.95 but I'm not interested in that here because it isn't being realised, just what I've net gained in terms of money invested, sales return and money still invested.

Even now I'm doubting myself...

TCA

Hi John. Just to add to any confusion, why wouldn't the first number in the sequence be a positive number? If £2,650.73 is the cost of the remaining investment then don't you need the original cost of the investment to arrive at any profit? And by that logic should you not exclude the £2,650.73 (and even the £360.72?) because there's no realised gain on them? i.e. no disposals.

Or is it me that's talking nonsense?

JohnRo

That's simply because the XIRR function likes the numbers in that format and I pulled them from the spreadsheet.

My reasoning for the last number being the cost and not the value is that the value (of the amount still invested) is constantly changing but the amount I've already taken out isn't, so this way it reports a solid net capital return to date.

When (if) I eventually sell up, the last number will be the final value less costs and at that point the total net gain will be settled.

Total return being = capital gain + capital return + income

TCA

Not sure if my confusion lies in the fact that when using XIRR, the first amount in a series of cash flows is optional but would generally be used for the cost of the item in question. But if you don't include the initial cost, I'm confused as to how you can arrive at a profit figure. If £1,845.31 is capital in (i.e a sale), where is the original purchase to reference the gain?

JohnRo

Negative numbers are purchases, positive numbers are sales.

I've stripped out the income, that's recorded elsewhere. Likewise capital gain is ignored by using the tax cost, not the value.

Obviously the last number isn't a sale though, that's the tax cost of what I still hold invested on the account.

TCA

JohnRo wrote: »

Negative numbers are purchases, positive numbers are sales.

Got it. The way you phrased negative as "capital in" threw me a wobbly. As you said, by including the current holding as the last item at cost, you imply sale at no profit, so that seems correct to me.

As you were then, apologies for the ramblings!