Adjusted Closing Price vs. Closing Price

by Tim Plaehn Google

    Look up historical prices for a stock or exchange-traded fund, and you will find several prices listed for each day the stock market was open. The closing price and adjusted closing price tell you different things about a stock's value on the selected date. Use the adjusted close to calculate a stock's total return to an investor if shares were bought on that date.

    Reported Stock Prices

    Four different share prices are recorded for a stock for each trading day in the market. When you look up a share price for a particular day, you will find the opening price, the high and low prices for the day, and the closing price. Graphically, the four prices are shown on the popular bar and candlestick charts. Investors holding shares for the long term tend to be most interested in their stocks' closing prices.

    Corporate Actions Affect Prices

    Sometimes the price of a stock changes because of events that are not associated with the supply-and-demand forces of the markets. For instance, when a stock is about to pay a dividend, it goes "ex-dividend," and the share price drops by the amount of the dividend to prevent traders from collecting a payout by owning a stock for one day. Also, if a company declares a stock split or reverse stock split, the share price will change radically, even though it does not actually affect the value of the company or investors' holdings in the stock. The adjusted close price shows the effect of these events.

    Adjusting for Splits and Dividends

    The adjusted closing price on a specific date reflects all of the dividends and splits since that day. Each time a dividend is paid or a stock split declared, the adjusted closing price changes for every day in the history of the stock. For example: On Wednesday, Stock X closed at $40 per share. On Thursday, a two-for-one stock split went into effect; Stock X opened at $20 and closed at $21, up $1. The actual closing price would deceivingly indicate a $19 decline ($40-$21). However, the adjusted close for Wednesday would change to $20, and the adjusted close for Thursday of $21 shows the actual $1 gain in the share price.

    Calculating Total Return

    The adjusted closing price from a date in history can be used to calculate a close estimate of the total return, including dividends, that an investor earned if shares were purchased on that date. For example, as of this writing, $197.07 was both IBM's actual and adjusted closing price for July 12, 2013. Go back 20 years in history, and the actual closing price on July 12, 1993, was 48.13. However, the adjusted closing price was $9.52. This adjusted closing price shows that an investment in IBM on that date produced an almost 2,000 percent return for investors -- not the 310 percent that the actual closing price would indicate.

    Photo Credits

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    About the Author

    Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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