How to Calculate Weighted Average Price Per Share

You can easily calculate the average price you paid for your stocks, but that number might not give you very helpful information to use in your future investing decisions. If you want to improve your assessment of your stock performance, you can use a formula that professional investors use to evaluate stock purchase prices – the weighted average price per share. Understanding your weighted average stock price will help you better determine if your stock was a hit or miss this year.

​Read More​: How to Calculate the Weighted Average Trade Price

When you invest in stocks, you might have several goals. You might simply want the biggest gross return on your investment. That means you want to earn ​$2,000​ on your stock buy vs. ​$1,700​ for the year.

If you’re looking at making new investments, your goal might instead be to get the biggest percentage return on your investment. For example, if you had to spend ​$1,500​ to end up with your ​$2,000​, you made a 33 percent return on your investment. If you spent ​$1,000​ on your stock that ended up worth ​$1,700​, you made a roughly 70 percent return on your investment.

​Read More​: How to Figure the Weighted Average of Common Stock

In addition to your share purchase price, you should look at your commissions and fees to purchase and sell the stock, any capital gains taxes you’ll pay, the impact of reinvesting dividends and other returns. This forms your cost basis for your stock. You can use this calculation to determine what your profit will be if you sell your shares now.

You should understand that the timing of stock sales affects how much you’ll pay in taxes, since the IRS classifies some capital gains as short-term gains and others as long-term gains, taxing them at different rates.

​Read More​: How to Calculate Price Weighted Average for Stocks

If you simply calculate the average price of all the stock your purchased, regardless of how many shares you purchased at different prices, you might get an unrealistic picture of your average cost per share. For example, if you bought 2,000 shares at ​$10​ each (​$20,000​), 1,000 shares at ​$15​ (​$15,000​) and 100 shares at ​$30​ each (​$3,000​), do you really want to treat those shares the same?

If so, the average of ​$10​ + ​$15​ + ​$30​ = 55/3 = ​$18.33​ per share, because you’ve given the same weight to the small number of shares you bought at ​$30​ as you did to the larger number of shares you bought at ​$10​.

If you want to know how your investment has performed over the year (such as figuring out your percentage return on investment per share), you’ll want to know the weighted average purchase price compared to its current market price.

To do that, you’ll add ​$20,000​ + ​$15,000​ + ​$3,000​ to get a total spend of ​$38,000​. If you divide ​$38,000​ by 3,100 shares, your weighted average purchase price per share was ​$12.26​ per share. That’s a big difference from the ​$18.33​ average per share.