What it means
Almost every market screen shows a price change. It answers a simple question: is the asset worth more or less than it was before?
The comparison point can be the last close, the start of the week, or the date you bought it. There are two common ways to express it.
The dollar change is the plain difference between the two prices, while the percentage change divides that difference by the starting price. The percentage is more useful for comparison, since a $2 move means very different things for a $10 share and a $200 share.
Price change is the raw material of return. If you bought at $40 and the price is now $46, the price change is $6, or 15%.
That is not the whole story, because dividends, interest and fees also affect what you earn, but it is the part that arises from movements in market value. Businesses watch price changes in many places other than the stock market.
Procurement teams track commodity price changes, retailers track changes in their selling prices, and economists track changes in consumer prices. In each case, the period matters: a price rise over one day tells a different story from the same rise over five years.
A practical point is that percentage changes do not add up in a simple way. A fall of 50% followed by a rise of 50% leaves you with 75% of the original value, not 100%.
When combining several periods, multiply the growth factors instead of adding the percentages. Finally, keep an eye out for adjustments.
When a company splits its shares or pays a special dividend, historical prices are often restated so that price changes stay comparable. Using unadjusted prices can make a normal event look like a crash.
In practice
Real-world examples.
Example
A coffee importer sees the price of green coffee beans rise from $2.00 to $2.30 a pound over a quarter. The change of $0.30 is 15%. The finance team revises its cost forecast and considers passing part of the increase on to customers. It also asks suppliers for a fixed price over the next six months.
Example
A fund manager reviews the monthly performance of a stock holding that has risen from $80 to $84. The price change is $4, or 5%. She compares it with the market index, which rose 3%, and notes the stock has outperformed. The two-point gap becomes part of her monthly report to the investment committee.
Example
A software company raises the price of its subscription from $50 to $55 a month. The price change is $5, or 10%. The sales team tracks cancellations carefully to see how customers react. If cancellations stay below 2%, the higher price will remain in place.
Formula
Calculation
Price change = ending price - starting price; percentage price change = (ending price - starting price) / starting price x 100%.
An investor buys 500 shares at $40 and the price rises to $46. Price change = $46 - $40 = $6 per share. Percentage change = $6 / $40 = 0.15, or 15%. The gain on the holding is 500 x $6 = $3,000. If the price had instead fallen to $34, the change would be $34 - $40 = -$6, which is -$6 / $40 = -15%. Over several periods, growth factors multiply: a rise of 10% followed by a fall of 10% gives 1.10 x 0.90 = 0.99, a net loss of 1%, not zero. This is why the order and size of price moves matter when you chain them together.Case study
Seen in the real world.
Greenhaven Retail is a fictional chain used here for illustration. Its buyer noticed that the price of a key imported product had changed from $12.00 to $13.80 over six months.
The change of $1.80 was 15%, but the finance manager pointed out that the company's selling price had risen only 5%. The gap meant that each unit now earned a smaller margin.
The illustrative company raised prices by a further 6% and negotiated a volume discount with the supplier. Tracking the price change on both the cost and the selling side protected the margin.
Watch out
Common mistakes.
- Adding percentage changes across periods. Combine them by multiplying growth factors, such as 1.10 x 1.10 = 1.21 for two 10% rises.
- Comparing dollar changes between assets with different prices. Use percentages for a fair comparison.
- Ignoring dividends and splits. Unadjusted prices can distort the picture of what actually happened.
Questions
People also ask.
What is the difference between price change and return?
Return includes income such as dividends and interest, while price change covers only the movement in the market price.
Why is the starting point important?
The percentage depends on the base, so a different start date gives a different answer.
How do I calculate a price change over several years?
Use the formula with the start and end prices, and divide by the number of years or use a compound growth rate for an annual figure. The compound rate is more accurate because it allows for growth building on earlier growth.
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