|Return on equity (ROE)
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Definition of Return on equity (ROE)
Return on equity (ROE)
Indicator of profitability. Determined by dividing net income for the past 12
return on equity (ROE)
This key ratio, expressed as a percent, equals net
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 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
Arithmetic mean return.
An average of the subperiod returns, calculated by summing the subperiod returns
The ratio of total assets to stockholder equity.
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
Value of outstanding common shares at par, plus accumulated retained
Sum of the differences between the expected return on a stock and the
Indicator of financial leverage. Compares assets provided by creditors to assets provided
A common term for convertible bonds because of their equity component and the
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
Dual syndicate equity offering
An international equity placement where the offering is split into two
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
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
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
Holding period return
The rate of return over a given period.
Total return over a given horizon.
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)
The balance of a margin account. Related: buying on margin, initial margin requirement.
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
Leveraged required return
The required return on an investment when the investment is financed partially by debt.
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
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
Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the
Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a
Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various
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 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
This is a company's total assets minus total liabilities. A company's net worth is the
Balance sheet item that includes the book value of ownership in the corporation. It
The residual claims that stockholders have against a firm's assets, calculated by
Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index
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.
Top-down equity management style
A management style that begins with an assessment of the overall
Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to
Total dollar return
The dollar return on a nondollar investment, which includes the sum of any
In performance measurement, the actual rate of return realized over some evaluation period. In
Unleveraged required return
The required return on an investment when the investment is financed entirely
RATE OF RETURN ON STOCKHOLDERSâ EQUITY
The percentage return or profit that management made on each dollar stockholders invested in a company. Hereâs how you figure it:
RATE OF RETURN ON TOTAL ASSETS
The percentage return or profit that management made on each dollar of assets. The formula is:
RATIO OF DEBT TO STOCKHOLDERSâ EQUITY
A ratio that shows which groupâcreditors or stockholdersâhas the biggest stake in or the most control of a company:
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.
STOCKHOLDERSâ (OR OWNERSâ) EQUITY
The value of the ownersâ interests in a company.
Accounting rate of return (ARR)
A method of investment appraisal that measures
Funds raised from shareholders.
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 shareholdersâ funds plus
Return on investment (ROI)
The net profit after tax as a percentage of the shareholdersâ investment in the business.
Target rate of return pricing
A method of pricing that estimates the desired return on investment to be achieved from the
An account that reduces an equity account. An example is Treasury stock.
Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).
A contra account that reduces purchases by the amount of items purchased that were subsequently returned.
A contra account that offsets revenue. It represents the amount of sales made that were later returned.
The total amount of contributed capital and retained earnings; synonymous with stockholders' equity.
The total amount of contributed capital and retained earnings; synonymous with shareholdersâ equity.
A widely used financial statement ratio to assess the
Refers to one of the two basic sources of capital for a business, the
internal rate of return (IRR)
The precise discount rate that makes the
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