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Return on capital ( ROC ), or return on invested capital ( ROIC ), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by shareholders and other debtholders. [1] It indicates how effective a company is at turning capital into ...
Return on investment. Return on investment ( ROI) or return on costs ( ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the ...
Formula. Establish a minimum market capitalization (usually greater than $50 million). Exclude utility and financial stocks. Exclude foreign companies ( American Depositary Receipts ). Determine company's earnings yield = EBIT / enterprise value. Determine company's return on capital = EBIT / (net fixed assets + working capital ).
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data. In finance, the capital asset pricing model ( CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio .
A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers ...
The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. [1] The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value ...
Risk-adjusted return on capital. Risk-adjusted return on capital ( RAROC) is a risk -based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses. The concept was developed by Bankers Trust and principal designer Dan Borge in the late 1970s. [1]
It is commonly represented as total assets less current liabilities (or fixed assets plus working capital requirement). [2] ROCE uses the reported (period end) capital numbers; if one instead uses the average of the opening and closing capital for the period, one obtains return on average capital employed (ROACE).
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