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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:Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In Absolute Right of ReturnGoods may be returned to the seller by the purchaser without restrictions. Accounting rate of return (ARR)A method of investment appraisal that measures 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 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 annual returnThe fund return, for any 12-month period, including changes in unit value and the reinvestment of distributions, but not taking into account sales, redemption, distribution or other optional charges or income taxes payable by any unitholder that would reduce returns. 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. book rate of returnAccounting income divided by book value. Book ReturnsBook yield is the investment income earned in a year on a portfolio of assets purchased over a number of years and at different interest rates, divided by the book value of those assets. Bottom-up equity management styleA management style that de-emphasizes the significance of economic 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. Classical MacroeconomicsThe school of macroeconomic thought prior to the rise of Keynesianism. Common stock/other equityValue of outstanding common shares at par, plus accumulated retained Contra-equity accountAn account that reduces an equity account. An example is Treasury stock. Cost of EquitySame as the cost of common stock. Sometimes viewed as the 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 Debt/Equity RatioA comparison of debt to equity in a company's capital structure. debt-to-equity ratioA widely used financial statement ratio to assess the 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, EquityFunds raised from shareholders. EquityAmounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings). equityRefers to one of the two basic sources of capital for a business, the EquityThe difference between the total of all recorded assets and liabilities on the balance EquityOwnership. Common stock represents equity in a corporation. EquityThe net worth of a business, consisting of capital stock, capital (or paid-in) surplus (or retained earnings), and, occasionally, certain net worth reserves. Common equity is that part of the total net worth belonging to the common shareholders. Total equity includes preferred shareholders. The terms common stock, net worth, and common equity are frequently used interchangeably. equityThe net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares or stocks are often known as equities. Equity-based insuranceLife insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio. Equity Buy-BackRefers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount. 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 investmentThrough equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock. Equity kickerUsed to refer to warrants because they are usually issued attached to privately placed bonds. Equity-linked policiesRelated: Variable life Equity marketRelated:Stock market Equity MethodAccounting method for an equity security in cases where the investor has sufficient 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 SecurityAn ownership interest in an enterprise, including preferred and common stock. Equity swapA swap in which the cash flows that are exchanged are based on the total return on some stock 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 ReturnThe total amount of money (return) an investor anticipates to receive from an investment. Expected return-beta relationshipImplication of the CAPM that security risk premiums will be Expected return on investmentThe return one can expect to earn on an investment. See: capital asset 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) Internal rate of return a. The average annual yield earned by an investment during the period held. Internal rate of returnThe rate of return at which the present value of a series of future 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 internal rate of return (IRR)The precise discount rate that makes the Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash internal rate of return (IRR)the expected or actual rate of internal rate of return (IRR)Discount rate at which project NPV = 0. Inventory returnsInventory returned from a customer for any reason. This receipt 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. MacroeconomicsThe study of the determination of economic aggregates such as total output and the price level. Market returnThe return on the market portfolio. MicroeconomicsThe study of firm and individual decisions insofar as they affect the allocation and distribution of goods and services. 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 owners' equityRefers to the capital invested in a business by its shareowners Owners' equityThe total of all capital contributions and retained earnings on a business’s 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 Purchase returnsA contra account that reduces purchases by the amount of items purchased that were subsequently returned. Quasi-EquityFunds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital. rate of returnTotal income per period per dollar invested. Rate of Returnreturn on invested capital (calculated as a percentage). Often an investor has, as one of their investment criteria, a minimum acceptable rate of return on an acquisition. RATE OF RETURN ON STOCKHOLDERS’ EQUITYThe 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 ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is:
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