|return on capital|
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Definition of return on capital
return on capital
income; it is equal to the rate of return multiplied by the amount of the investment
The operating profit before interest and tax as a percentage of the total shareholders’ funds plus
the recovery of the original investment (or principal) in a project
Refers to recouping, or regaining, invested capital over
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.
Part of the return that is not due to systematic influences (market wide influences). In
Money after-tax rate of return minus the inflation rate.
The annual rate of return that when compounded t times, would have
Arithmetic mean return.
An average of the subperiod returns, calculated by summing the subperiod returns
The average project earnings after taxes and depreciation divided by the average
A firm's required payout to the bondholders and to the stockholders expressed as a
The ratio of the average cash inflow to the amount invested.
Money invested in a firm.
Net result of public and private international investment and lending activities.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
A firm's set of planned capital expenditures.
The process of choosing the firm's long-term capital assets.
Amount used during a particular period to acquire or improve long-term assets such as
The transfer of capital abroad in response to fears of political risk.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
Capital gains yield
The price change portion of a stock's return.
A lease obligation that has to be capitalized on the balance sheet.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Placing one or more limits on the amount of new investment undertaken by a firm, either
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
Amounts of directly contributed equity capital in excess of the par value.
The debt and/or equity mix that fund a firm's assets.
A method of constructing a replicating portfolio in which the manager purchases a
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
Interest that is not immediately expensed, but rather is considered as an asset and is then
Complete capital market
A market in which there is a distinct marketable security for each and every
Cost of capital
The required return for a capital budgeting project.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the
Total par value (number of shares issued, multiplied by the par value of each share). Also
The return realized on a portfolio for any evaluation period, including (1) the change in market
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
Efficient capital market
A market in which new information is very quickly reflected accurately in share
Ex post return
Related: Holding period return
The expected return of a portfolio based on the expected returns of its component assets and
Excess return on the market portfolio
The difference between the return on the market portfolio and the
Also called abnormal returns, returns in excess of those required by some asset pricing model.
Expected future return
The return that is expected to be earned on an asset in the future. Also called the
The return expected on a risky asset based on a probability distribution for the possible rates
Expected return on investment
The return one can expect to earn on an investment. See: capital asset
Expected return-beta relationship
Implication of the CAPM that security risk premiums will be
Geometric mean return
Also called the time weighted rate of return, a measure of the compounded rate of
Hard capital rationing
capital rationing that under no circumstances can be violated.
Holding period return
The rate of return over a given period.
Total return over a given horizon.
The unique capabilities and expertise of individuals.
Incremental internal rate of return
IRR on the incremental investment from choosing a large project
Internal rate of return
Dollar-weighted rate of return. Discount rate at which net present value (NPV)
Issued share capital
Total amount of shares that are in issue. Related: outstanding shares.
Value at which a company's shares are recorded in its books.
Leveraged required return
The required return on an investment when the investment is financed partially by debt.
Indicator of financial leverage. Shows long-term debt as a proportion of the
The total dollar value of all outstanding shares. Computed as shares times current
Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate
The return on the market portfolio.
Money rate of return
Annual money return as a percentage of asset value.
Multiple rates of return
More than one rate of return from the same project that make the net present value
Net working capital
Current assets minus current liabilities. Often simply referred to as working capital.
Nondiversifiability of human capital
The difficulty of diversifying one's human capital (the unique
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
In the balance of payments, other capital is a residual category that groups all the capital
Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.
Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially
Perfect capital market
A market in which there are never any arbitrage opportunities.
Perfect market view (of capital structure)
Analysis of a firm's capital structure decision, which shows the
Personal tax view (of capital structure)
The argument that the difference in personal tax rates between
Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of
Planned capital expenditure program
capital expenditure program as outlined in the corporate financial plan.
Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various
Wealth that can be represented in financial terms, such as savings account balances, financial
The return that is actually earned over a given time period.
The minimum expected return you would require to be willing to purchase the asset, that is,
The change in the value of a portfolio over an evaluation period, including any distributions made
Return on assets (ROA)
Indicator of profitability. Determined by dividing net income for the past 12 months
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 assets
The ratio of earnings available to common stockholders to total assets.
A variant of pure expectations theory which suggests that the return that an
Riskless rate of return
The rate earned on a riskless asset.
The minimum available return that will trigger an immunization strategy in a contingent
"Soft" Capital Rationing
capital rationing that under certain circumstances can be violated or even viewed
Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of the
The return of a portfolio over a shorter period of time than the evaluation period.
T-period holding-period return
The percentage return over the T-year period an investment lasts.
Time-weighted rate of return
Related: Geometric mean return.
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