How much bang are you getting for your account equity buck over a given time period? In this report, I'll teach you a simple calculation that will allow you to keep track over your return on equity, from quarter to quarter or month to month.

Be aware that your results will vary with market conditions as well as the consistency of your performance. So when you identify swings in your performance, don't take the variance at face value. Examine the trades behind your results as well as the performance of whatever market averages you consider your bogey.

Assuming you add no outside funds into your account, and withdraw no funds during the period, you calculate a straightforward percentage return on equity.

Profit = Ending Equity – Starting Equity; Performance = Profit / Starting Equity

However, if you add or withdraw funds during a given time period, the above equation will produce an erroneous result. In such cases, percentage performance is calculated using the following equations:

Profit = Ending Equity – Starting Equity – Additions + Withdrawals

Adjusted Starting Equity = Starting Equity + (Each Addition X number of days in period remaining when that addition was made / total days in period) – (Each Withdrawal X Number of days in period remaining when that withdrawal was made / total days in period)

Performance = Profit / Adjusted Starting Equity

The following example uses quarterly time periods and assumes the following values:

Starting Equity on Jan. 1, 2001 = $100,000

Additions: $30,000 on Jan. 23, $40,000 on Feb. 1

Withdrawals: $20,000 on March 1, $30,000 on March 7

Ending Equity = $140,000

Profit = $140,000 – $100,000 – $70,000 + $50,000

Profit = $20,000

Adjusted Starting Equity = $100,000 + ($30,000 X 67/90) + ($40,000 X 58/90) – ($20,000 X 30/90) – ($30,000 X 24/90)

Adjusted starting equity = $133,444

Performance = $20,000 / $133,444

Performance = 15%

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