return

(noun)

Gain or loss from an investment.

Related Terms

Examples of return in the following topics:

  • Dollar Returns

    • The dollar return does not take into account things like the time value of money or how the amount of return earned per year; it is simply the difference in nominal values.
    • If the first option has a $1,000,000 return over two years and the other has a $1,000,000 return over 10 years, the first option is clearly more attractive.
    • The investor will always choose the option with the higher dollar return.
    • If a firm is looking for an additional $50,000 from investment, they will only accept investments with a $50,000 dollar return, regardless of the percent return.
    • The dollar return is the difference in value from year to year, plus the previous dollar return.

  • Economies and Diseconomies of Scale

    • Increasing, constant, and diminishing returns to scale describe how quickly output rises as inputs increase.
    • There are three stages in the returns to scale: increasing returns to scale (IRS), constant returns to scale (CRS), and diminishing returns to scale (DRS).
    • Returns to scale vary between industries, but typically a firm will have increasing returns to scale at low levels of production, decreasing returns to scale at high levels of production, and constant returns to scale at some point in the middle .
    • If output changes proportionally with all the inputs, then there are constant returns to scale.
    • Identify the three types of returns to scale and describe how they occur

  • Percentage Returns

    • This type of return is also called the return on investment (ROI), where the numerator is the dollar return.
    • To find the return for the security overall, simply sum the dollar returns and divide by the initial value.
    • This is the arithmetic mean of the return.
    • CAGR is a way of measuring the return per year.
    • Another common method for finding the annual return is to calculate the internal rate of return (IRR).

  • Return on Assets

    • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
    • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
    • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
    • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$
    • This is generally done by comparing the current return on assets ratio to the company's past performance or to a competitor's ratio.

  • Reporting

    • A realized return is the difference between the sale price of the asset and the purchase price.
    • The difference between realized and unrealized returns is that realized returns result from the actual sale of the asset, while unrealized returns occur when the asset is not sold and result from a change in the market price.
    • Returns are reported each reporting period when the financial statements are created.
    • While realized returns are reported on the income statement (and affect the cash flow statement) and unrealized returns are reported on the balance sheet, only realized returns have tax implications.
    • The IRS taxes only realized returns, though financial reports must also include unrealized returns on the balance sheet.

  • Return on Investment

    • Return on investment (ROI) is one way of considering profits in relation to capital invested.
    • Return on assets (ROA), return on net assets (RONA), return on capital (ROC) and return on invested capital (ROIC) are similar measures with variations on how 'investment' is defined .
    • The purpose of the "return on investment" metric is to measure per-period rates of return on dollars invested in an economic entity.
    • Return on investment (%) = Net profit ($) / Investment ($) × 100
    • Return on assets (ROA), return on net assets (RONA), return on capital (ROC) and return on invested capital (ROIC) are similar measures with variations on how 'investment' is defined.

  • Relationships between ROA, ROE, and Growth

    • Return on assets is a component of return on equity, both of which can be used to calculate a company's rate of growth.
    • In review, return on equity measures the rate of return on the ownership interest (shareholders' equity) of common stockholders.
    • Return on assets is, however, a vital component of return on equity, being an indicator of how profitable a company is before leverage is considered.
    • In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.
    • Discuss the different uses of the Return on Assets and Return on Assets ratios

  • Return on Investment

    • The purpose of the return on investment metric is to measure per period rates of return on dollars invested in an economic entity.
    • Marketers should understand the position of their company and the returns expected.
    • Return on investment is often compared to expected (or required) rates of return on dollars invested.
    • This chart shows the rate of return on investments after training teachers.
    • Explain why pricing objectives focus on delivering a return on investment (ROI)

  • ROE and Potential Limitations

    • Return on equity measures the rate of return on the ownership interest of a business and is irrelevant if earnings are not reinvested or distributed.
    • What is the return on equity?
    • Return on equity (ROE) measures the rate of return on the ownership interest or shareholders' equity of the common stock owners.
    • Returns on equity between 15% and 20% are generally considered to be acceptable.
    • This is an expression of return on equity decomposed into its various factors.

  • Calculating and Understanding Average Returns

    • Average returns are commonly found using average ROI, CAGR, or IRR.
    • This is a simple way to calculate the average return.
    • Average ROI generally does not calculate the actual average rate of return, because it does not incorporate compounding returns.
    • CAGR, unlike average ROI, does consider compounding returns.
    • The internal rate of return (IRR) is another commonly used method for calculating the average return .