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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
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 After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the 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 Asset/equity ratioThe ratio of total assets to stockholder equity. 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. Bottom-up equity management styleA management style that de-emphasizes the significance of economic Common stock/other equityValue of outstanding common shares at par, plus accumulated retained Cumulative abnormal return (CAR)Sum of the differences between the expected return on a stock and the Debt/equity ratioIndicator of financial leverage. Compares assets provided by creditors to assets provided Deferred equityA common term for convertible bonds because of their equity component and the 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 Dual syndicate equity offeringAn international equity placement where the offering is split into two EquityRepresents ownership interest in a firm. Also the residual dollar value of a futures trading account, Equity capAn agreement in which one party, for an upfront premium, agrees to compensate the other at Equity claimAlso called a residual claim, a claim to a share of earnings after debt obligation have been Equity collarThe simultaneous purchase of an equity floor and sale of an equity cap. Equity contribution agreementAn agreement to contribute equity to a project under certain specified Equity floorAn agreement in which one party agrees to pay the other at specific time periods if a specific Equity kickerUsed to refer to warrants because they are usually issued attached to privately placed bonds. Equity marketRelated:Stock market Equity multiplierTotal assets divided by total common stockholders' equity; the amount of total assets per Equity optionsSecurities that give the holder the right to buy or sell a specified number of shares of stock, at Equity swapA swap in which the cash flows that are exchanged are based on the total return on some stock Equity-linked policiesRelated: Variable life EquityholdersThose holding shares of the firm's equity. Euroequity issuesSecurities sold in the Euromarket. That is, securities initially sold to investors 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. 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 Foreign equity marketThat 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 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) Investor's equityThe balance of a margin account. Related: buying on margin, initial margin requirement. Leveraged equityStock in a firm that relies on financial leverage. Holders of leveraged equity face the Leveraged required returnThe required return on an investment when the investment is financed partially by debt. Long-term debt to equity ratioA capitalization ratio comparing long-term debt to shareholders' equity. 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 Portfolio internal rate of returnThe 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 ratiosRatios that are designed to measure the profitability of the firm in relation to various Realized returnThe return that is actually earned over a given time period. Required returnThe minimum expected return you would require to be willing to purchase the asset, that is, ReturnThe 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 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 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 Shareholders' equityThis is a company's total assets minus total liabilities. A company's net worth is the Stockholder equityBalance sheet item that includes the book value of ownership in the corporation. It Stockholder's equityThe residual claims that stockholders have against a firm's assets, calculated by Stratified equity indexingA method of constructing a replicating portfolio in which the stocks in the index 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. Top-down equity management styleA management style that begins with an assessment of the overall Total debt to equity ratioA capitalization ratio comparing current liabilities plus long-term debt to 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 RATE OF RETURN ON STOCKHOLDERSâ EQUITYThe 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 ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: RATIO OF DEBT TO STOCKHOLDERSâ EQUITYA 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) EQUITYThe value of the ownersâ interests in a company. Accounting rate of return (ARR)A method of investment appraisal that measures EquityFunds 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 pricingA method of pricing that estimates the desired return on investment to be achieved from the Contra-equity accountAn account that reduces an equity account. An example is Treasury stock. EquityAmounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings). 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. Shareholders' equityThe total amount of contributed capital and retained earnings; synonymous with stockholders' equity. Stockholders' equityThe total amount of contributed capital and retained earnings; synonymous with shareholdersâ equity. debt-to-equity ratioA widely used financial statement ratio to assess the equityRefers 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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