|return on investment|
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Definition of return on investment
return on investment
a ratio that relates income generated
The return one can expect to earn on an investment. See: capital asset
Generally, book income as a proportion of net book value.
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.
The net profit after tax as a percentage of the shareholders’ investment in the business.
A very general concept that refers to some
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
A method of investment appraisal that measures
A method of pricing that estimates the desired return on investment to be achieved from the
model a model that indicates the return on investment
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
Average accounting return
The 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.
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the
Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a
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
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-beta relationship
Implication of the CAPM that security risk premiums will be
Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with
Future investment opportunities
The options to identify additional, more valuable investment opportunities
Geometric mean return
Also called the time weighted rate of return, a measure of the compounded rate of
Guaranteed investment contract (GIC)
A pure investment product in which a life company agrees, for a
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)
Related: financial analysts
Financial intermediaries who perform a variety of services, including aiding in the sale of
Decisions concerning the asset side of a firm's balance sheet, such as the decision to
Investment grade bonds
A bond that is assigned a rating in the top four categories by commercial credit
The revenue from a portfolio of invested assets.
Also called a portfolio manager and money manager, the individual who manages a
Investment product line (IPML)
The line of required returns for investment projects as a function of beta
Investment tax credit
Proportion of new capital investment that can be used to reduce a company's tax bill
A closed-end fund regulated by the investment Company Act of 1940. These funds have a
As a discipline, the study of financial securities, such as stocks and bonds, from the investor's
investments that a regulated entity is permitted to make under the rules and regulations
Leveraged required return
The required return on an investment when the investment is financed partially by debt.
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
Mutually exclusive investment decisions
investment decisions in which the acceptance of a project
Gross, or total, investment minus depreciation.
Net present value of future investments
The present value of the total sum of NPVs expected to result from
Passive investment strategy
See: passive management.
Passive investment management
Buying a well-diversified portfolio to represent a broad-based market
Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the
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 rate at which an investor assumes interest payments made on a debt security can be
The risk that proceeds received in the future will have to be reinvested at a lower potential
REIT (real estate investment trust)
Real estate investment trust, which is similar to a closed-end mutual
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages
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 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
Short-term investment services
Services that assist firms in making short-term investments.
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.
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
The mirror image of the asset substitution problem, wherein stockholders refuse
Unit investment trust
Money invested in a portfolio whose composition is fixed for the life of the fund.
Unleveraged required return
The required return on an investment when the investment is financed entirely
A portfolio of zero net value established by buying and shorting component
RATE OF RETURN ON STOCKHOLDERS’ EQUITY
The 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 ASSETS
The percentage return or profit that management made on each dollar of assets. The formula is:
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
A division or unit of an organization that is responsible for achieving an adequate return on
Return on capital employed (ROCE)
The operating profit before interest and tax as a percentage of the total shareholders’ funds plus
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.
capital investment analysis
Refers to various techniques and procedures
internal rate of return (IRR)
The precise discount rate that makes the
return on assets (ROA)
Although there is no single uniform practice for
return on equity (ROE)
This key ratio, expressed as a percent, equals net
return on sales
This ratio equals net income divided by sales revenue.
Internal Rate of Return (IRR)
The discount rate that equates the present value of the net cash
The commitment of funds (capital) in anticipation of an increased
Return on Common Equity Ratio
A measure of the percentage return earned on the value of the
Return on Total Assets Ratio
A measure of the percentage return earned on the value of the
accounting rate of return (ARR)
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
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