Forums Finance What do you mean by absolute return?

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varsha
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What do you mean by absolute return?

#16571
varsha
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Ans. Absolute return is the type of return which is collected or obtained over a specific period of time by the assets of the company and it takes into account the appreciation and the depreciation, which is expressed in terms of percentage over an asset like a stock or mutual funds over a particular period of time. It is basically, the amount that has been collected on an investment by the organization. Absolute return is the return which is the result of the gain or loss that is experienced by an asset over the period of time independently without any set standards. Absolute returns are also referred to as total return. The goal of absolute return is to earn returns regardless of without taking into consideration the conditions that are prevailing in the market. Absolute return is calculated as follows:

Absolute return=100*(Selling Price-Cost price)/Cost Price

For example, machinery was purchased in January 2017 at a price of \$20000 and sold in July 2018 at a cost of \$25000 So, the absolute return will be:
Absolute return=100*(25000-20000)/20000
=100*5000/20000
=25%

This is the simplest calculation of absolute return in which time period is not considered. There are various other methods also to calculate the absolute return on the investment portfolio.

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