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Cash on cash return |
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Cash on cash returnA method used to find the return on investments when there is no active secondary market. The yield is determined by dividing the annual cash income by the total investment. See: Current yield or yield to maturity.Cash on cash return Similar MatchesAverage accounting returnAverage accounting returnThe average project earnings after taxes and depreciation divided by the average book value of the investment during its life. Return on capital employedReturn on capital employedA measure of a company's profitability. It may be defined as:Earnings before interest and tax divided by total capital employed plus short term borrowings minus total intangibles.ROCE takes all the assets employed in the business, including borrowings, and measures the return the company made on them. If a company has a low ROCE, it is using its resources inefficiently, even if its profit margin is high.Calculation: multiply operating profit by 100, and divide the result by total capital employedExample: Company A made an operating profit of £897m on total capital employed of £4,342m. ROCE was therefore (897 x 100) / 4,342= 20.66%Yardstick: A company's ROCE should be higher than the return on gilts (the benchmark for a risk-free investment return). And unless it is higher than the cost of borrowing, any increase in the company's borrowings or the general level of interest rates will reduce shareholders' earnings. A ROCE of 20% or more is considered very good. Expost average rate of returnExpost average rate of returnThe historical mean percentage an asset has yielded. Return on total assetsReturn on total assetsA measure of how good a company is at 'squeezing' earnings out of the assets employed in its business, which is calculated as follows:Return on assets = (profit before interest and tax) / (fixed assets + current assets)If you are using this ratio to evaluate a company, you need to consider what kind of business the company is in. 'People' businesses, such as advertising agencies, need very few capital assets compared with a manufacturer which typically needs to invest large amounts in plant and equipment.In general, a return of 12% is adequate and a return of 16% or more is considered good. Certainty Equivalent ReturnCertainty Equivalent ReturnThe certain (zero risk) return an investor would trade for a given (larger) return with an associated risk. For example, a particular investor might trade an uncertain expected 4% active return with 6% risk, for a certain active return of 1.5%. Further SuggestionsSystematic ReturnMultiple rates of return Holding period return Leveraged required return Required Rate of Return (RRR) Market return Joint tax return Arithmetic average (mean) rate of return Increasing returns to scale Consolidated tax return Risk return tradeoff Return joint tax return Return of capital "Static" Return return on equity Expected return beta relationship Portfolio internal rate of return Market RRR (required rate of return) Schedule Annual rate of return Dividend Discount Return Return on equity (ROE) Return to capital Money rate of return Total dollar return |
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