|Return on Common Equity Ratio|
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Definition of Return on Common Equity Ratio
Return on Common Equity Ratio
A measure of the percentage return earned on the value of the
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
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
The annual rate of return that when compounded t times, would have
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
Arithmetic mean return.
An average of the subperiod returns, calculated by summing the subperiod returns
Legal document establishing a corporation and its structure and purpose.
The ratio of total assets to stockholder equity.
ratios that measure how effectively the firm is managing its assets.
The average project earnings after taxes and depreciation divided by the average
The ratio of the average cash inflow to the amount invested.
A management style that de-emphasizes the significance of economic
Placing one or more limits on the amount of new investment undertaken by a firm, either
Also called financial leverage ratios, these ratios compare debt to total capitalization
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the
The proportion of a firm's assets held as cash.
An agreement between two or more countries that permits the free movement of capital
These are securities that represent equity ownership in a company. common shares let an
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned
Common stock market
The market for trading equities, not including preferred stock.
Common stock ratios
ratios that are designed to measure the relative claims of stockholders to earnings
The representing of accounting information over multiple years as percentages
A single centralized account into which funds collected at regional locations
Movement of cash from different lockbox locations into a single concentration
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned
The number of shares of common stock that the security holder will receive from
A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
The net present value of an investment divided by the investment's initial cost. Also called
ratios used to test the adequacy of cash flows generated through earnings for purposes of
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the
Indicator of short-term debt paying ability. Determined by dividing current assets by current
Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.
Days' sales in inventory ratio
The average number of days' worth of sales that is held in inventory.
Indicator of financial leverage. Compares assets provided by creditors to assets provided
Total debt divided by total assets.
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided
The date on which a firm's directors meet and announce the date and amount of the next
A common term for convertible bonds because of their equity component and the
Dividend payout ratio
Percentage of earnings paid out as dividends.
The product of modified duration and the initial price.
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
Domestic International Sales Corporation (DISC)
A U.S. corporation that receives a tax incentive for
Dual syndicate equity offering
An international equity placement where the offering is split into two
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.
Earnings retention ratio
Specialized banking institutions, authorized and chartered by the Federal Reserve Board
The duration calculated using the approximate duration formula for a bond with an
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
An agreement in which one party, for an upfront premium, agrees to compensate the other at
Also called a residual claim, a claim to a share of earnings after debt obligation have been
The simultaneous purchase of an equity floor and sale of an equity cap.
Equity contribution agreement
An agreement to contribute equity to a project under certain specified
An agreement in which one party agrees to pay the other at specific time periods if a specific
Used to refer to warrants because they are usually issued attached to privately placed bonds.
Total assets divided by total common stockholders' equity; the amount of total assets per
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
A swap in which the cash flows that are exchanged are based on the total return on some stock
Related: Variable life
Those holding shares of the firm's equity.
Securities sold in the Euromarket. That is, securities initially sold to investors
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
The percentage of the assets that were spent to run a mutual fund (as of the last annual
The time when the option contract ceases to exist (expires).
An expiration cycle relates to the dates on which options on a particular security expire. A
The last day (in the case of American-style) or the only day (in the case of European-style)
Feasible target payout ratios
Payout ratios that are consistent with the availability of excess funds to make
Federal Deposit Insurance Corporation (FDIC)
A federal institution that insures bank deposits.
Financial leverage ratios
Related: capitalization ratios.
The result of dividing one financial statement item by another. ratios help analysts interpret
Fisher's separation theorem
The firm's choice of investments is separate from its owner's attitudes towards
Fixed asset turnover ratio
The ratio of sales to fixed assets.
Fixed-charge coverage ratio
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
Foreign Sales Corporation (FSC)
A special type of corporation created by the Tax Reform Act of 1984 that
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
The ratio of a pension plan's assets to its liabilities.
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from
GEMs (growing-equity mortgages)
Mortgages in which annual increases in monthly payments are used to
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.
Hedge ratio (delta)
The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
Holding period return
The rate of return over a given period.
Total return over a given horizon.
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
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