Do Not Call
Understand what adjusted closing price means in the stock market, how it is calculated, and why it matters to investors and analysts alike.
Understanding stock prices involves more than just knowing how much a share was last traded for. Among the various metrics, the adjusted closing price plays a crucial role in painting a more accurate picture of a stock's true value over time. This article delves into what the adjusted closing price is, how it's calculated, and why it's important for both investors and analysts.
The adjusted closing price is the stock's closing price on a given trading day, revised to reflect any events that may have affected the stock's value. These events include dividends, stock splits, bonus issues, and rights offerings. It offers a more accurate representation of a stock's historical performance, especially when comparing prices over long periods.
The calculation of adjusted closing price depends on the specific corporate action that requires adjustment:
Adjusted Closing Price = Closing Price × (Adjustment Factor)
Where:
Adjustment Factor for dividends = (Previous Close - Dividend per Share) / Previous Close
For stock splits or bonus issues, the adjustment factor is calculated as 1 divided by the split or bonus ratio. For example, a 2-for-1 stock split means the adjustment factor is 1/2 = 0.5, effectively halving the price to reflect the increased share count.
For rights issues, the adjustment factor accounts for the dilution caused by discounted shares offered to existing shareholders and is calculated based on the rights issue price and ratio.
Assume a stock closed at ₹500 and paid a dividend of ₹10. The adjusted closing price would be:
Adjustment Factor = (500 - 10) / 500 = 0.98
Adjusted Closing Price = 500 × 0.98 = ₹490
This price reflects the stock’s value after accounting for the dividend payout.
The table below provides a quick comparison of different price metrics:
Metric |
Meaning |
When Recorded |
Use Case |
|---|---|---|---|
Closing Price |
Final trade price of the day |
End of trading day |
Daily performance |
Adjusted Close |
Post-corporate action closing price |
Post-adjustment |
Historical analysis |
Opening Price |
First trade price of the day |
Market open |
Day trend indication |
High/Low |
Intraday price extremes |
During trading hours |
Volatility assessment |
LTP |
Most recent trade price |
Real-time |
Live trading decisions |
This table helps distinguish between similar-sounding but fundamentally different stock price types.
Despite its advantages, the adjusted closing price has a few limitations:
It does not reflect intraday volatility or market sentiment.
Variations in adjustment methodology may exist across different data providers.
It is not useful for day traders who rely on real-time pricing data.
The adjusted closing price is a valuable tool for understanding a stock’s true historical performance. It allows investors and analysts to factor in events like dividends and splits for more accurate evaluations. Though not ideal for short-term traders, it holds immense value for those assessing long-term trends and portfolio outcomes.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in
National Stock Exchange of India (NSE): https://www.nseindia.com
Bombay Stock Exchange (BSE): https://www.bseindia.com
Investopedia: https://www.investopedia.com
Corporate Finance Institute (CFI): https://corporatefinanceinstitute.com
It is the closing price of a stock that has been modified to reflect dividends, stock splits, and other corporate actions, providing a more accurate reflection of the stock's historical value.
The regular closing price is the final trading price of the day, while the adjusted closing price accounts for dividends and stock splits to ensure accurate historical comparisons.
An adjusted closing price is useful for investors because it reflects a stock's true performance over time by accounting for corporate actions like dividends, stock splits, and rights offerings, eliminating any distortions they may cause.
You can access it via official stock exchange websites like NSE and BSE, or through financial portals like Yahoo Finance.
No, it is a historical price metric and is not relevant for real-time or intraday trading decisions.
