0
How are yield profit and total return used to evalute investment performance?
Wiki User
∙ 16y ago
The term yield can mean many things in different situations. Its computation is different for bonds and different for stocks. Even with bonds only, there are two different types: current yield and yield to maturity (or to call). It is also frequently used as a substitute for the term Total Return. Assuming however that you are interested in evaluating a performance of a portfolio of different assets (stocks, options, bonds, etc.), Yield would most probably refer to Internal Rate of Return, and Total Return to Time Weighted Rate of Return. IRR takes into account effects created by inflows or outflows of money, while TWRR eliminates those effects. Thus, if your money manager or broker shows you a comparison of your portfolio's performance to market indices, he or she definitely shows you TWRR compared to an index's total return. If you can get hold of annualized IRR of your portfolio of assets, and probably not many mangers will be willing to provide you with this information (this cannot be compared to Dow Jones Industrial Average or other market indices), you can compare this with different available to you investment, e.g., what rate you would get if investing in your bank's CDs. Computation of both is quite complicated and usually involves special computer software. The interpretation of, for example, 5% annual TWR is simple - every dollar invested a year ago will bring you 25 cents. 5% of annual IRR shows you at what rate your every dollar was invested independently from when it was added to your account. It is similar to a bank's APR shown for your checking account.
Wiki User
∙ 16y ago
Add your answer:
Earn +20 pts
How is the concept of a normal return on investment related to the distinction between business and economic profit?
Economic profit is the profit made on an investment of some sort in which inflation and other economic factors have been considered. Normal return on investment is just the net profit made in the investment (simple subtraction).
How does opportunity cost enter in to the make or buy decision?
The opportunity cost of a business decision is the value of the potential benefit of the next best opportunity foregone.For example, if I have one £100 to invest, and I can invest in project A, which will return me a profit of £300 or project B, which will return a profit of £150, then I will choose project A. The total cost of the project is:Cost of investment + opportunity cost = £100 + £150 = £250.The £150 in the above formula is the profit I would have made from the next best option for my investment (ie, project B).Since the total cost of my project (£250) is less than my profit (£300), then I have made the right decision. If I had chosen project B for my investment, my total cost would be (100+300=)£400, which is less than the profit of £250, and so I know I have made the wrong decision.In deciding how best to maximise return on capital, one must always consider the opportunity cost of one's investment. It is important to remember that there is always the alternative of simply investing one's money in the bank, earning nominal interest (say 5%). If the expected returns are not above this rate, then total cost (including opportunity cost) will exceed the return on investment and so the potential investment should not be made.
In economics a goal of a firm is?
The goals are: 1) Profit Maximisation 2) Cost minimisation 3) Technological Advancement 4) Return on investment 5) Customer Satisfaction. Bas that's enough......
What is the difference between investment and expenditure?
An investment you expect a return, with the other, you don't.
Is making a profit immoral?
Profit, in and of itself, is just merely a return on investment. It is merely making more than what was spent. That, in and of itself, cannot be called immoral. For a small business owner, such as myself, profit is my income. If my business doesn't make more than what it spends, I don't have an income. This issue of morality comes up in how I make that profit. If I make that profit by exploitation, abuse, dishonesty or other nefarious means, my means of making that profit are immoral.
Formula for average rate of return?
Average rate of return=Average profit /Initial investment*100% or ARR=Average profit /Average investment*100% or ARR=Total profit /Initial Investment*100%
How is the concept of a normal return on investment related to the distinction between business and economic profit?
Economic profit is the profit made on an investment of some sort in which inflation and other economic factors have been considered. Normal return on investment is just the net profit made in the investment (simple subtraction).
What is business performance management?
Return on investment
Return On Investment in fmcg?
Return on investment is the amount that you get back for investing in something. The formula is ROI=(Profit *100)/(Investment * number of years.)
How do you know when an investment is successful?
An investment is considered successful when it generates a positive return on investment (ROI). This means that the income or profits generated from the investment exceed the initial cost. It is also important to compare the investment's performance to relevant benchmarks and industry standards to determine if it is outperforming its peers. Additionally, the investment should align with the investor's goals and risk tolerance.
How is profit productivity measured?
Productivity is closely related to, but not dependent on, profit. It can be measured by return on investment (ROI).
What is the difference between returns and profit?
return is calculate against investment. profit is calculte against cost.
Return on Investment is composed of what two ratios?
Profit margin and asset turnover
What are profit and investment centres?
Profit centers are departments or units within a business that generate revenue and directly contribute to the overall profitability of the organization. They are responsible for both generating revenue and controlling costs. On the other hand, investment centers are divisions or units within a business that have the authority to make investment decisions. They are responsible for allocating and managing financial resources and evaluating the return on investment for various projects and initiatives.
What are explanation of maximization of shareholders profit?
explain how to make the most money (profit) for stock owners of a company. A return on their investment.
How do you calculate ROI?
Definition of 'Return On Investment - ROI'A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula:
Return on investment and safety of investment?
Return on investment is the amount of profit on the invested money after deducting taxes, safety of investment is the risk factor involved in the investment. Such as risk is high safety of investment is less.
