Return on equity (ROE)

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 assets (ROA)
Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).

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.

Dept/equity ratio
A ratio showing the percentage of total shareholders' equity represented by long-term dept. This important fundamental test shows the degree of capitalization that is derived from dept rather than from equity.

Equity investments
Investments that involve ownership of shares or units, through purchase of stock or mutual fund shares.

All equity rate
The discount rate that reflects only the business risks of a project and abstracts from the effects of financing.

Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to shareholders' equity.

Top-down equity management style
A management style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the favored sectors.

Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index are classified into stratum, and each stratum is represented in the portfolio.

Stockholder's equity
The residual claims that stockholders have against a firm's assets, calculated by subtracting total liabilities from total assets.

Stockholder equity
Balance sheet item that includes the book value of ownership in the corporation. It includes capital stock, paid in surplus, and retained earnings.

Shareholders' equity
This is a company's total assets minus total liabilities. A company's net worth is the same thing. Also referred to as ownership interest in the UK.

Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a stated date. A limit is placed on the value of the shares the investor receives.

Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.

Leveraged equity
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the benefits and costs of using debt.

Bottom-up equity management style
A management style that de-emphasizes the significance of economic and market cycles, focusing instead on the analysis of individual stocks.

Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.

Growing-equity mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

Private Equity Fund
A fund that buys majority stakes in companies and/or entire business units to restructure its capital, management and organization. Usually the targets are delisted (unless already unlisted), held private and restructured over a period of 3-7 years, and then again listed through an IPO.

Restructuring may be done through leveraged buyouts, venture capital, growth capital, angel investing, mezzanine debt, management share participation programmes and others.

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Pure Equity Trust
A special type of irrevocable trust marketed by promoters. The trust assets are obtained by an exchange of a certificate of beneficial interest in return for the assets, as opposed to traditional means, such as by gifting.

Equity-Linked Note (ELN)
An equity-linked note combines the characteristics of a zero or low coupon bond or note with a return component based on the performance of a single equity security, a basket of equity securities, or an equity index. In the latter case, the security would typically be called an equity index-linked note. Equity-linked notes come in a variety of styles. The minimum return may be nil with all of what would normally be an interest payment going to pay for upside equity participation. Alternatively, ...

Macroeconomics
The subdivision of the discipline of economics that studies and strives to explain the functioning of the economy as a whole -- the total output of the economy, the overall level of employment or unemployment, movements in the average level of prices (inflation or deflation), total savings and investment, total consumption and so on. The focus of much of macroeconomic theory is analysis of the ways in which conscious government policies (and the unintended secondary consequences of these policie ...

Microeconomics
The subdivision of the discipline of economics that studies the behavior of individual households and firms interacting through markets, how prices and levels of output of individual products are determined in these markets, the interconnections by which different markets affect each other, and how the price mechanism allocates resources and distributes income.