Definition / Examples of Adjusted Closing Price
The adjusted closing price is the closing price of a stock that has been adjusted for corporate actions such as dividends, stock splits, or the issuance of additional shares. The adjusted closing price provides a more accurate snapshot of a stock’s value than the regular closing price because it takes into account factors like dividends, stock splits, and new share issuance. Use the stock split ratio to determine the adjusted closing value after a stock split. After a 2-for-1 stock split, the adjusted closing value will be half of the closing value, even though the company’s market capitalization remains fixed. To calculate the adjusted closing price for dividends, subtract the amount of the dividend from the closing price.
How Does the Adjusted Closing Price Work?
Often, the closing price and the adjusted closing price are the same for a trading day. However, when certain events occur, such as a large dividend payout or a stock split, these numbers can differ significantly. Here is how to calculate the adjusted closing price after a dividend payout or a stock split.
Dividends
If a company announces a dividend payout, you need to subtract the dividend amount from the stock price to calculate the adjusted closing price. Let’s assume the company’s closing price is $100 per share and it pays a dividend of $2 per share. You would subtract the $2 dividend from the $100 closing price. The adjusted closing price would be $98 per share.
Stock Splits
In the case of a stock split, the company reduces the stock price by splitting existing shares into multiple shares. Companies often split their stock to make share prices more manageable for individual investors. The market capitalization, which is the total value of all outstanding shares of the company, does not change when a stock split occurs.
Let’s say the company’s stock price is $40 and it undergoes a 2-for-1 stock split. You should use the split ratio, which is 2-for-1 in this case, to determine the adjusted closing value. You would divide the stock price of $40 by 2 and multiply it by 1 to get the adjusted closing value. If you owned one share valued at $40, you would now own two shares valued at $20 each. The stock’s closing price will be $40, while the adjusted closing price will be $20.
What Does This Mean for Individual Investors?
Using the adjusted closing price of a stock is generally a better tool than the closing price for evaluating the stock over time. For example, if you only looked at the closing price in August 2020 for Apple, you might conclude that Apple’s shares suddenly lost about 25% of their value, which is not correct, of course. By using the adjusted closing value, you can more accurately calculate Apple’s returns and compare them to other securities.
Although calculating the adjusted closing value may seem complicated, some financial quoting websites automatically calculate this figure for you and include it in the historical data of the stock.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts found in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.
Investor.gov. “Closing Price.” Accessed June 25, 2021.
Yahoo! Finance. “Johnson & Johnson (JNJ) Historical Data.” Accessed June 25, 2021.
Investor.gov. “Ex-Dividend Dates.” Accessed June 25, 2021.
Macrotrends. “Apple – 41 Year Stock Split History | AAPL.” Accessed June 25, 2021.
Apple Inc. “Stock Price.” Accessed June 25, 2021.
Source:
https://www.thebalancemoney.com/what-is-adjusted-closing-price-5190242
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