# How to calculate annualized returns from monthly returns in Excel

You can watch a video tutorial here.

Calculating the annualized return of an investment is a way of understanding how well the investment is doing. This can be done using the monthly returns of the investment. Excel does not have a function for this calculation but you can create the formula in Excel.

The formula for calculating the annualized return is:

- Annualized return = (1+R)^12-1
- R is the monthly rate of return

This can be applied if the rate of return is the same for each month. If it is not, then (1+R) is multiplied for each month.

## Option 1 – The rate is the same for each month

### Step 1 – Create the formula

- Select the cell in which the result is to appear
- Type the formula using cell references:
- =(1+Monthly rate of return)^12-1

- Press
**Enter**

### Step 2 – Format as a percentage

- Click the
**Percent Style**button on the ribbon

### Step 3 – Check the result

- The annualized return is displayed

## Option 2 – The rate is different for each month

### Step 1 – Create a temporary column

- Select the cell next to the return for Jan 2021
- Type the formula using cell references:

=1+Monthly rate of return

- Press
**Enter**

### Step 2 – Copy the formula

- Using the fill handle from the first cell, drag the formula to the remaining cells

OR

- Select the cell with the formula and press
**Ctrl+C**or choose**Copy**from the context menu (right-click) - Select the rest of the cells in the column and press
**Ctrl+V**or choose**Paste**from the context menu (right-click)

### Step 3 – Create the formula

- Select the cell where the result is to appear
- Type the formula using cell references:
- = PRODUCT(temporary column)-1

- Press
**Enter**

### Step 4 – Check the result

- Press the
**Decrease Decimal**button to reduce the number of decimal places - The annualized return is displayed