Talk:Rate of return

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Merge Rate of return on investment into this article ?[edit]

I suggest you merge Rate of Return with Rate of Return on Investment. The only caveat I can think of is that some contemporary investments use "return" to indicate compound/reinvestment "rate of return." I guess the FDIC keeps the banks honest regarding the difference between capital and return-on-capital, but the SEC can always say, "Didn't you read the fine-print footnote on page 14?" 65.78.214.71 02:46, 3 September 2006 (UTC)

agree, but what about the size of the page, it is getting even bigger this way--Afa86 02:02, 5 November 2006 (UTC)

I saw the remark that Rate of return on investment needs to be merged into this article. I think the information in Rate of return on investment is not very accurate and too verbose. I have added a link to the Mathematics of Interest rate setion of the Compount interest page and I think this does the merge. It is just one extra line but it still covers Rate of return on investment completely. The only thing that still needs to happen is deleting the page Rate of return on investment. Ruerd 08:54, 30 December 2006 (UTC)

The Rate of return on investment article doesn't seem to address a general audience by starting with the basics then moving into more esoteric/technical stuff. Don't know if the technical stuff is accurate. If it should be merged, who does it? SueHay 01:14, 3 February 2007 (UTC)

This suggested merger seems to have been done now.

Jonathan G. G. Lewis 09:18, 18 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

Annualized return - this section is over-simplified and not accurate[edit]

The section on annualized return is inaccurate. By simply multiplying or dividing the return (or the return period) by a factor which is proportional to the one year period, the model described fails to account for compounding. Now, I actually don't know the right formula for converting the return of an arbitrary period of time into an annualized return, but I hope somebody does, because the way it's described now is only accurate if there's no compounding at all, and in fact it's not even accurate for the little-used (in the real world) case of "simple interest". Beanluc (talk) 17:12, 18 July 2008 (UTC)

I hope that my rewrite to-date of the work of previous contributors has answered this complaint.
Jonathan G. G. Lewis 07:30, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

Annual returns and annualized returns - Example is probably wrong.[edit]

At the end of this section there is a simple example of a four year investment with profit of 265$. It is suggested that the annualized return is (1265/1000)/4 = 6.625%. But according to previous section: Geometric average rate of return. The annualized return is a geometric mean, hence should be (1265/1000)^(1/4) - 1 = 6.05%

I am not sure of this analysis, so I don't change the text, but if you are - please change! --Yuvalaviel (talk) 13:19, 25 March 2010 (UTC)


Totally agree. The example uses "Compound Yield" which is not defined anywhere, is afaik non-standard & (as pointed out above) not really meaningful.
Unless someone objects, I plan to come back top this page & remove all references to "Compound Yield" & replace with Arithmetic average rate of return + geometric.
Going, going, gone...

--Tony999 (talk) 05:52, 8 August 2012 (UTC)

@Tony999, I totally agree with you. We should definitely remove any references to compound yield. I have never heard of this term, and it was not defined any where in the article. I also suggest removing the two example tables, since they are using compound yield calculation and no text content was referring to these tables.Zsljulius (talk) 19:25, 18 October 2013 (UTC)
The example I think being referred to (which wasn't my work, by the way) appears to assume no reinvestment. I have left it in, and repaired it, but making that point explicit.
Jonathan G. G. Lewis 09:52, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

Dollar cost averaging[edit]

The article appears to only discuss return calculation based on a lump sum investment. We should also discuss the return calculation when money is invested over a period of time, such as DCA. --Kalbasa (talk) 16:56, 6 January 2009 (UTC)

Have you checked out the Dollar cost averaging article?
Jonathan G. G. Lewis 03:08, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)
I see from your comment on the Talk page for that article that you have already seen it.
Jonathan G. G. Lewis 03:56, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

rate of profit[edit]

I'd like others opinion, but to me "rate of profit" is a totally different area. In finance, Return has to do with holding period or market returns. In accounting they may have to do with 'profit', but not in the finance disciple.

Cheers, Mark

Mark ok7 (talk) 01:53, 8 January 2009 (UTC)

Whether the word profit may be used in the context of rate of return depends on how broadly you apply it, thereby risking offence to specialists in either accounting or mathematical finance, but the Oxford dictionary has no qualms using profit to define return. There does not seem to be a safer word with any less accounting semantic baggage.
Jonathan G. G. Lewis 07:24, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

Total Returns[edit]

Could somebody justify or cite a source for the definition of Total Returns that is given on this page? The way the Reinvestment Factor is used here, your returns are going to be too strongly affected by the final period's Distribution--make that zero, and that undermines distributions from all other years.

I believe it makes more sense to simply multiply successive Reinvestment Factors rather than adding 1 after multiplying with Di/Pi. Morningstar, Inc. takes this approach, as can be seen on page 19 of the document called "Morningstar Rating™ for Funds Methodology", which can be found here.

I couldn't find any useful results for the term Reinvestment Factor on Google search except those that leech from this Wikipedia page. So if this is wrong, it had better be checked soon because it's propagating everywhere. The next formula on the page (Annual Average Geometric Return, as required by SEC) makes perfect sense.

-Ankurtg (talk) 06:07, 14 July 2010 (UTC)

I rewrote this section a while back.Jonathan G. G. Lewis 12:50, 23 August 2014 (UTC)

Rate of return (ROR) and Return on Investments (ROI)[edit]

Are they same? I come from a different background so am wondering how? Ganesh J. Acharya (talk) 08:21, 11 April 2011 (UTC)

The term return on investment seems to have had a more specific accounting origin[1]. Accountants make reference to ratios which use the return as the numerator with things other than investment as the denominator. Nevertheless, some may consider it redundant to emphasise that we are referring to the ratio of return and investment - a bit of a pleonasm.
Secondly, rate of return seems to be generally reserved for the return per monetary unit of investment and per period of time, so it is a rate, or ratio, in two senses. The term return on investment does not make this explicit, even if sometimes the result is annual.
Jonathan G. G. Lewis 06:57, 19 November 2013 (UTC)

Re-write[edit]

I have substantially rewritten the early parts of this article.

Jonathan G. G. Lewis 12:43, 18 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I have revised everything up to the end of the 'Calculation' section. The following sections look rather repetitive, but I will stop here, at least for now.

Jonathan G. G. Lewis 06:27, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I have removed the first paragraph under 'Uses', because it is unnecessary to have a second definition, the definition is confusing and refers imprecisely to cash flow:

  • ROI is a measure of cash generated by or lost due to the investment[citation needed]. It measures the cash flow or income stream from the investment to the investor, relative to the amount invested. Cash flow to the investor can be in the form of profit, interest, dividends, or capital gain/loss. Capital gain/loss occurs when the market value or resale value of the investment increases or decreases. Cash flow here does not include the return of invested capital.

Jonathan G. G. Lewis 08:22, 19 November 2013 (UTC)

I have made a few more changes to following sections, but I can see plenty of room for further work to improve the article.

Jonathan G. G. Lewis 09:47, 19 November 2013 (UTC)

I have removed the first paragraph under 'Summary: overall rate of return', for the same reason as I removed the first paragraph under 'Uses', namely that it is again unnecessary to have a second definition, the definition is confusing and refers imprecisely to cash flow. It read:

Rate of Return and Return on Investment indicate cash flow from an investment to the investor over a specified period of time, usually a year.

Jonathan G. G. Lewis 10:50, 19 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)


I have just attempted some more corrections and improvements within the section rather cryptically entitled 'Cash and potential cash returns', although I do not understand the title, and I do not see the connection between the title and the content, so I may come back later and change it. The rest of the article below this point I find rather repetitive and irrelevant. Maybe some other editor can extract the important points about US rules on reporting returns.

Jonathan G. G. Lewis 08:45, 20 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I am about to attempt to break up what is currently the final section:

Summary: overall rate of return[edit]
ROI is a measure of investment profitability, not a measure of investment size. While compound interest and dividend reinvestment can increase the size of the investment (thus potentially yielding a higher dollar return to the investor), Return on Investment is a percentage return based on capital invested.
In general, the higher the investment risk, the greater the potential investment return, and the greater the potential investment loss.

I have already added the point made in the first paragraph to the definition at the top of the article.

I will now move the point made in the second paragraph to the top of the section entitled "Returns when capital is at risk".

Jonathan G. G. Lewis 09:05, 21 November 2013 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I have changed my mind about the second paragraph. I have struggled to make it a simple free-standing logical point, but I have failed, and just removed it altogether. It is a statement of orthodoxy, but on its own with no evidence, argument or supporting citation provided, it is a rather uninformative bald statement, which I think belongs in context in an article on investment risk, rather than on its own in this more basic article.

Jonathan G. G. Lewis 09:40, 21 November 2013 (UTC)

Everything in the section Reinvestment when capital is at risk: rate of return and yield and everything below that section I find to be repetitive and long-winded, and as a consequence it is not very clear. I have not touched these yet, but I invite any interested expert on the subject to have a go at sprucing up the rest of the article.

Jonathan G. G. Lewis 04:11, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I have removed both the confusing reference to yield and the calculation of ROI from the example I have now also retitled as US income tax on investment returns because I think it was both unnecessary and incorrect.

The formulae for the undefined term reinvestment factor in the section headed Total returns look nonsensical, and their application in the example below looks completely wrong, but I have decided to leave it to an expert on US income tax to correct this.

Jonathan G. G. Lewis 08:07, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

I have gone back on my previous decision, and I have removed the suspect formulae for reinvestment factors, and the line from the table in the example referring to them, and corrected the calculations of returns.

Jonathan G. G. Lewis 09:08, 14 January 2014 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

Foreign currency return[edit]

I have added new sections on foreign currency returns.--Jonathan G. G. Lewis 08:35, 2 February 2016 (UTC) — Preceding unsigned comment added by Jonazo (talkcontribs)

  1. ^ . AccountingExplained.com http://accountingexplained.com/managerial/performance/return-on-investment.  Missing or empty |title= (help)