Similar financial terms
Abnormal returnIn 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 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 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.
Reinvestment risk on bonds
Usually, when the yield of a bond is calculated, you assume that the coupons received before maturity are reinvested. The additional income from such reinvestment is sometimes referred to as interest-on-interest which depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in the reinvestment rate of a given strategy because of changes in market interest rates is called reinvestment risk. This risk is that the interest rate at which interim cash flows can be reinve ...
Investment Club
A group of equal-minded individuals (friends, colleagues or acquaintances) who gather together for the purpose of investing in the stock exchange.
Zero-investment portfolio
A zero-investment portfolio consists of zero net value because of a balanced establishment between long and short position, usually in the context of an arbitrage strategy.
Dept investments
Investments that involve making capital available to others in exchange for intrest, through savings accounts, loans, or bonds.
Equity investments
Investments that involve ownership of shares or units, through purchase of stock or mutual fund shares.
Underinvestment problem
The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.
Short-term investment services
Services that assist firms in making short-term investments.
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages secured by any type of real property and issue multiple classes of ownership interests to investors in the form of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform Act of 1986.
REIT (real estate investment trust)
Real estate investment trust, which is similar to a closed-end mutual fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.
Reinvestment risk
The risk that proceeds received in the future will have to be reinvested at a lower potential interest rate.
Reinvestment rate
The rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.
Passive investment management
Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
Net present value of future investments
The present value of the total sum of NPVs expected to result from all of the firm's future investments.
Net investment
Gross, or total, investment minus depreciation.
Mutually exclusive investment decisions
Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.
Legal investments
Investments that a regulated entity is permitted to make under the rules and regulations that govern its investing.
ROIC
Return on invested capital. This ratio is commonly used to assess the quality of company returns.
There are two ways of calculating ROIC
1. The percentage of net operating profit after taxes (NOPAT) to total operating assets.
2. (Net income - Dividends) / Total capital
The latter is more commonly used, while the former is used when companies receive their income from other sources.
CFROI
Cash Flow Return on Investment (CFROI), originally developed by HOLT Value Associates (since Jan 2002 part of CFSB), is an Economic Profit based corporate performance/valuation framework used by portfolio managers and corporations on EP basis. CFROI is normally calculated on an annual basis and is compared to an inflation-adjusted cost of capital to determine whether a corporation has earned returns superior to its costs of capital. Cash Flow Return on Investment can help compare across compani ...
