The adjusted closing price is the stock price of a publicly traded company that has been changed to account for any corporate actions that have occurred since the last trading day. This includes things like stock splits, dividends, and rights issues. This number is important because it gives a more accurate picture of a company’s true value. It’s also used by many investment professionals when making buy/sell decisions. In this article, we will explain what the method is and how it’s calculated.

What is Adjusted Closing Price?

An adjusted closing price considers corporate actions such as stock splits and dividends. It is the final price of a security at the end of a trading day, after all, adjustments have been made.

The adjusted closing price is essential for investors to track because it provides a more accurate picture of a security’s true value. It is also used in many technical analysis studies.

What are the types of Adjustments made in the Adjusted Closing Price?

There are three types of adjustments made in the adjusted closing price:

• Dividend Adjustments: If a company declares a dividend on its stock, the ex-dividend date is the last day that the stock trades without the dividend included in its price. Thus, the closing price after adjustments will reflect this dividend on the ex-dividend date.
• Rights Offerings Adjustments: A rights offering is when a company sells new shares of stock to existing shareholders. The shareholders are given the right to buy additional shares at a discount, usually for a period of 30 days. The adjusted closing price will take this into account and reflect the rights offering.
• Stock Splits Adjustments: A stock split is when a company divides its existing shares into multiple new shares. This usually happens when the stock price has risen and the company wants to make it more affordable for investors to buy. The final closing price will be divided by the number of new shares created in the split.

How is the Adjusted Closing Price calculated?

When a stock splits, or a dividend is paid, the closing price is adjusted to reflect these corporate actions. The closing price after adjustments takes into account these events so that investors can get an accurate picture of the stock’s true value.

To calculate this, you first need to determine the split ratio. This is simply the number of new shares that will be created divided by the number of old shares. For example, if a company announces a 2-for-1 stock split, the split ratio would be 2 (two new shares for everyone’s old share).

Once you have the split ratio, you can calculate the final number by taking the regular closing price and dividing it by the split ratio. So, if a stock trades at $100 per share and then undergoes a 2-for-1 stock split, its final price after adjustments would be $50 per share ($100 divided by 2).

If a company pays a dividend, the calculation is similar. Let’s say a stock trades at $100 per share and then pays a $2 per share dividend. The final number would be $98 per share ($100 minus $2).

What are the advantages of Adjusted Closing Price?

There are a few advantages of using this method when analyzing stocks:

• It eliminates the effects of corporate actions such as stock splits, dividends, and rights issues. This makes it easier to compare apples to apples when looking at historical data.
• It is a more accurate representation of “true” price movement since it factors in these events that can otherwise skew price data.
• Some investors prefer to use this method when making investment decisions since it gives a more complete picture of a stock’s performance.

What are the disadvantages of Adjusted Closing Price?

There are a few disadvantages of using this method to measure stock performance. First, it does not include dividends that were paid out during the year. This can give a false impression of how well a stock performed. Second, it can be difficult to find historical data for this. This makes it hard to compare stocks over time. Finally, some investors believe that this method is too complicated. Thus, they prefer to use other measures, such as unadjusted closing price or total return.