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Return on equity (ROE) |
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Return on equity (ROE)Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets (ROA) multiplied by financial leverage (total assets/total equity).Return on equity (ROE) Similar MatchesIncremental internal rate of returnIncremental internal rate of returnInternal rate of return (I.R.R.) on the incremental investment from choosing a larger instead of a smaller project. Systematic ReturnSystematic ReturnThe part of the return dependent on the benchmark return. We can break excess returns into two components: systematic and residual. The systematic return is the beta times the benchmark excess return. Risk return trade offRisk return trade offThe tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return, and vice versa. 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. Consolidated tax returnConsolidated tax returnA tax return combining the reports of affiliated companies, that are at least 80% owned by a parent company. Further SuggestionsInheritance tax returnInterim rate of return Average rate of return (ARR) Expected return on investment Return if Exercised Portfolio internal rate of return Expost average rate of return Geometric mean return Maximum expected return criterion (MERC) Simple rate of return Certainty Equivalent Return Increasing And Diminishing Returns Return on assets (ROA) Excess return on the market portfolio Economic rate of return Return Joint tax return Riskless rate of return Multiple rates of return Rate of return Expected future return Return to maturity expectations Decreasing returns to scale Arithmetic average (mean) rate of return Mean return |
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