Return on assets (ROA)

Similar financial terms

Abnormal return
In event studies, the part of the return that is not predicted; the change in value caused by the event. Also referred to as excess return, benchmark adjusted.

Total return swap
A total return swap is an exchange of a return on a debt security for LIBOR plus a spread. The return on the debt security includes income such as coupons and the change in its value.

Internal Rate of Return (IRR)
The internal rate of Return (IRR) is the discount rate that equals the present value of a future steam of cash flows to the initial investment. The IRR can be thought of as the annualized rate of return (in percent) of an investment using compound interest rate calculations. The IRR calculation is very useful when a number of future cash flows on which an interest rate needs to be calculated.

Abnormal returns
Part of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone.

After-tax real rate of return
Money after-tax rate of return minus the inflation rate.

Annualized holding period return
The annual rate of return that when compounded t times, would have given the same t-period holding return as actually occurred from period 1 to period t.

Unleveraged required return
The required return on an investment when the investment is financed entirely by equity (i.e. no debt).

Total return
In performance measurement, the actual rate of return realized over some evaluation period. In fixed income analysis, the potential return that considers all three sources of return (coupon interest, interest on interest, and any capital gain/loss) over some i nvestment horizon.

Total dollar return
The dollar return on a nondollar investment, which includes the sum of any dividend/interest income, capital gains or losses, and currency gains or losses on the investment. See also: total return.

T-period holding-period return
The percentage return over the T-year period an investment lasts.

Subperiod return
The return of a portfolio over a shorter period of time than the evaluation period.

Safety-net return
The minimum available return that will trigger an immunization strategy in a contingent immunization strategy.

Risk-adjusted return
Return earned on an asset normalized for the amount of risk associated with that asset.

Riskless rate of return
The rate earned on a riskless asset.

Return-to-maturity expectations
A variant of pure expectations theory which suggests that the return that an investor will realize by rolling over short-term bonds to some investment horizon will be the same as holding a zero-coupon bond with a maturity that is the same as that investment horizon.

Return on total assets
The ratio of earnings available to common stockholders to total assets.

Return on investment (ROI)
Generally, book income as a proportion of net book value.

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
The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.

Required return
The minimum expected return you would require to be willing to purchase the asset, that is, to make the investment.

Realized return
The return that is actually earned over a given time period.

Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various measures of the funds invested in the firm.

Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.

Multiple rates of return
More than one rate of return from the same project that make the net present value of the project equal to zero. This situation arises when the IRR method is used for a project in which negative cash flows follow positive cash flows. For each sign change in the cash flows, there is a rate of return.

Money rate of return
Annual money return as a percentage of asset value.

Market return
The return on the market portfolio.

Leveraged required return
The required return on an investment when the investment is financed partially by debt.

Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the actual return that comes from the release of news to the market.

Risk-adjusted return on capital (RAROC)
Measures performance on a risk-adjusted basis. Calculated as the economic return divided by economic capital. RAROC helps determine if a company has the right balance between capital, returns and risk. The central concept in RAROC is economic capital: the amount of capital a company should put aside needed based on the risk it runs.

Assets
Anything that the firm owns. In the balance sheet, assets are divided into intangible assets and tangible assets.

Current Assets
The value of assets held at the Balance Sheet date that are represented by cash, or can be expected to be converted into cash within the next 12 months.

Deferred assets
Payments that will be assigned as expenses in a later period, but that are paid in advance and temporarily set up as assets on the balance sheet.

Fixed assets
Alternative name for noncurrent assets.

Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling firm's assets.

Residual assets
Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.

Reproducible assets
A tangible asset with physical properties that can be reproduced, such as a building or machinery.

Real assets
Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a financial obligation.

Quick assets
Current assets minus inventories.

Publicly traded assets
Assets that can be traded in a public market, such as the stock market.

Other current assets
Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year.

Non-reproducible assets
A tangible asset with unique physical properties, like a parcel of land, a mine, or a work of art.

Net assets
The difference between total assets on the one hand and current liabilities and noncapitalized longterm liabilities on the other hand.

Long-term assets
Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect the market value of the assets.

Admitted Assets
Assets admitted by state law to be included in an insurance company's annual statement. These assets are an important item when regulators measure insurance company solvency. They may include mortgages, stocks, bonds and real estate.

Variance minimization approach to tracking
An approach to bond indexing that uses historical data to estimate the variance of the tracking error.

Stratified sampling approach to indexing
An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration or maturity.

Signaling approach
Approach to the determination of the optimal capital structure asserting that insiders in a firm have information that the market does not have; therefore, the choice of capital structure by insiders can signal information to outsiders and change the value of the firm. This theory is also called the asymmetric information approach.

Risk premium approach
The most common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.

Residual dividend approach
An approach that suggests that a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.

Optimization approach to indexing
An approach to indexing which seeks to optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Cross-sectional approach
A statistical methodology applied to a set of firms at a particular point in time.