Dollar Weighted Return Calculator

Formula

The formula to calculate the Dollar Weighted Return is:

\[ \text{R} = \frac{E - B - C}{B + W} \]

Where:

$\text{R}$ is the dollar-weighted return
$\text{E}$ is the ending value
$\text{B}$ is the beginning value
$\text{C}$ is the cash flows
$\text{W}$ is the weighted cash flows

What is a Dollar Weighted Return?

A dollar-weighted return, also known as the internal rate of return (IRR), is a measure of the profitability of an investment that takes into account the timing and amount of cash flows. Unlike time-weighted returns, which measure the performance of an investment without considering cash flows, dollar-weighted returns provide a more accurate picture of an investor’s actual experience by factoring in the impact of contributions and withdrawals. This makes it a valuable tool for evaluating the performance of investments with irregular cash flows, such as real estate or private equity.

Example Calculation

Let's assume the following values:

Ending Value (E) = $1200
Beginning Value (B) = $1000
Cash Flows (C) = $200
Weighted Cash Flows (W) = $150

Using the formula to calculate the Dollar Weighted Return (R):

\[ \text{R} = \frac{1200 - 1000 - 200}{1000 + 150} = 0 \]

The Dollar Weighted Return (R) is 0.