Over 700 finance terms, Shmooped to perfection.
Annual return is simply what you get back each year from your investment each year. You owned Smooshem Ketchup Company last year on Jan 1. The stock traded at $50 a share. By New Year's Eve the stock was trading for $55. But it also paid a $2 in dividends through the year. Its annual return, in simple terms (i.e. not worrying about the time value of dividends paid at different times of the year) was $7 total from a base of $50 or 7 / 50 = 14%.