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return on assets (ROA) |
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Definition of return on assets (ROA)return on assets (ROA)Although there is no single uniform practice for Return on assets (ROA)Indicator of profitability. Determined by dividing net income for the past 12 months
Related Terms:CARs (cumulative abnormal returns)a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock. Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In Acquisition of assetsA merger or consolidation in which an acquirer purchases the selling firm's assets. After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. Annualized holding period returnThe annual rate of return that when compounded t times, would have Arithmetic average (mean) rate of returnArithmetic mean return. Arithmetic mean returnAn average of the subperiod returns, calculated by summing the subperiod returns AssetsA firm's productive resources. Assets requirementsA common element of a financial plan that describes projected capital spending and the Average accounting returnThe average project earnings after taxes and depreciation divided by the average Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Cross-sectional approachA statistical methodology applied to a set of firms at a particular point in time. Cumulative abnormal return (CAR)Sum of the differences between the expected return on a stock and the Current assetsValue of cash, accounts receivable, inventories, marketable securities and other assets that Debt service parity approachAn analysis wherein the alternatives under consideration will provide the firm Dollar returnThe return realized on a portfolio for any evaluation period, including (1) the change in market Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Ex post returnRelated: Holding period return Exante returnThe expected return of a portfolio based on the expected returns of its component assets and Excess return on the market portfolioThe difference between the return on the market portfolio and the Excess returnsAlso called abnormal returns, returns in excess of those required by some asset pricing model. Exchange of assetsAcquisition of another company by purchase of its assets in exchange for cash or stock. Expected future returnThe return that is expected to be earned on an asset in the future. Also called the Expected returnThe return expected on a risky asset based on a probability distribution for the possible rates Expected return on investmentThe return one can expect to earn on an investment. See: capital asset Expected return-beta relationshipImplication of the CAPM that security risk premiums will be Financial assetsClaims on real assets. Geometric mean returnAlso called the time weighted rate of return, a measure of the compounded rate of Holding period returnThe rate of return over a given period. Horizon returnTotal return over a given horizon. Incremental internal rate of returnIRR on the incremental investment from choosing a large project Internal rate of returnDollar-weighted rate of return. Discount rate at which net present value (NPV) Leveraged required returnThe required return on an investment when the investment is financed partially by debt. Long-term assetsValue of property, equipment and other capital assets minus the depreciation. This is an Market returnThe return on the market portfolio. Money rate of returnAnnual money return as a percentage of asset value. Multiple rates of returnMore than one rate of return from the same project that make the net present value Net assetsThe difference between total assets on the one hand and current liabilities and noncapitalized longterm Non-reproducible assetsA tangible asset with unique physical properties, like a parcel of land, a mine, or a Optimization approach to indexingAn approach to indexing which seeks to Optimize some objective, such Other current assetsValue of non-cash assets, including prepaid expenses and accounts receivable, due Portfolio internal rate of returnThe rate of return computed by first determining the cash flows for all the Publicly traded assetsassets that can be traded in a public market, such as the stock market. Quick assetsCurrent assets minus inventories. Rate of return ratiosRatios that are designed to measure the profitability of the firm in relation to various Real assetsIdentifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a Realized returnThe return that is actually earned over a given time period. Reproducible assetsA tangible asset with physical properties that can be reproduced, such as a building or Required returnThe minimum expected return you would require to be willing to purchase the asset, that is, Residual assetsassets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full. Residual dividend approachAn approach that suggests that a firm pay dividends if and only if acceptable ReturnThe change in the value of a portfolio over an evaluation period, including any distributions made Return on equity (ROE)Indicator of profitability. Determined by dividing net income for the past 12 Return on investment (ROI)Generally, book income as a proportion of net book value. Return on total assetsThe ratio of earnings available to common stockholders to total assets. Return-to-maturity expectationsA variant of pure expectations theory which suggests that the return that an Risk premium approachThe most common approach for tactical asset allocation to determine the relative Riskless rate of returnThe rate earned on a riskless asset. Safety-net returnThe minimum available return that will trigger an immunization strategy in a contingent Signaling approachApproach to the determination of the optimal capital structure asserting that insiders in a Stratified sampling approach to indexingAn approach in which the index is divided into cells, each Subperiod returnThe return of a portfolio over a shorter period of time than the evaluation period. T-period holding-period returnThe percentage return over the T-year period an investment lasts. Time-weighted rate of returnRelated: Geometric mean return. Total dollar returnThe dollar return on a nondollar investment, which includes the sum of any Total returnIn performance measurement, the actual rate of return realized over some evaluation period. In Unleveraged required returnThe required return on an investment when the investment is financed entirely Variance minimization approach to trackingAn approach to bond indexing that uses historical data to ASSETSAnything of value that a company owns. Current assetsCash, things that will be converted into cash within a year (such as accounts receivable), and inventory. RATE OF RETURN ON STOCKHOLDERS’ EQUITYThe percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it: RATE OF RETURN ON TOTAL ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: RETURN ON INVESTMENT (ROI)In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole. Accounting rate of return (ARR)A method of investment appraisal that measures AssetsThings that the business owns. Current assetsAmounts receivable by the business within a period of 12 months, including bank, debtors, inventory and prepayments. Fixed assetsThings that the business owns and are part of the business infrastructure – fixed assets may be Intangible fixed assetsNon-physical assets, e.g. customer goodwill or intellectual property (patents and trademarks). Internal rate of return (IRR)A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an Return on capital employed (ROCE)The operating profit before interest and tax as a percentage of the total shareholders’ funds plus Return on investment (ROI)The net profit after tax as a percentage of the shareholders’ investment in the business. Tangible fixed assetsPhysical assets that can be seen and touched, e.g. buildings, machinery, vehicles, computers etc. Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the AssetsItems owned by the company or expenses that have been paid for but have not been used up. Intangible assetsassets owned by the company that do not possess physical substance; they usually take the form of rights and privileges such as patents, copyrights, and franchises. Purchase returnsA contra account that reduces purchases by the amount of items purchased that were subsequently returned. Sales returnsA contra account that offsets revenue. It represents the amount of sales made that were later returned. current assetsCurrent refers to cash and those assets that will be turned fixed assetsAn informal term that refers to the variety of long-term operating internal rate of return (IRR)The precise discount rate that makes the return on equity (ROE)This key ratio, expressed as a percent, equals net return on investment (ROI)A very general concept that refers to some return on salesThis ratio equals net income divided by sales revenue. Fixed Assets Turnover RatioA measure of the utilization of a company's fixed assets to Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash Return on Common Equity RatioA measure of the percentage return earned on the value of the Return on Total Assets RatioA measure of the percentage return earned on the value of the Total Debt to Total Assets RatioSee debt ratio
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