Part I
Measuring returns
Everything starts with a single number: how much did the portfolio make? Getting it right means dealing with cash flows, choosing the right kind of return, and linking periods together properly.
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What a return actually is
A return is how much something grew, measured against what you started with. Start with 10,000, end with 10,600, and collect 150 in dividends along the way: you gained 750 on 10,000. That's 7.5%.
R = End value − Start value + IncomeStart value
In plain termsPercentages let you compare a 10,000 savings account with a 10 billion pension fund. A 7.5% return means the same thing for both.
For practitionersThis is a total return: price change plus income. Income is normally recognised on an accrual basis (dividends at ex-date, interest as it accrues), not when cash lands. Gross-of-fees returns show investment skill; net-of-fees returns show what the client kept. GIPS composite presentations generally show both.
Try it
Change the values and watch the formula fill in.
Total return
0
All numbers are illustrative. The models are simplified for teaching: annual coupons, Black-Scholes options, simplified fee mechanics and no intra-period trading. Real systems add transaction-based returns, daily valuation, tax and corporate action processing, and reconciliation to the official TWR.