Capital and Rate of return: Difference between pages

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imported>Doug Williamson
(Expand for Capital goods and Servitisation.)
 
imported>Doug Williamson
(Expand the page for different annual bases of quoting rates.)
 
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1.  
The investor's return on an investment, expressed as a proportion of the amount invested.


''Financial accounting''.
Most commonly expressed as a percentage.


Money the business owes the owner.


This is equal to assets minus liabilities (including debt). 
<span style="color:#4B0082">'''Example'''</span>


In other words, the equity.
GBP 1 million is invested.  


GBP 1.03 million is repayable at the end of the period.


2.


''Corporate finance''. 
The rate of return per period (r) is:


More broadly in the corporate finance context, 'capital' is the total amount of funding available for the operations of a firm. 
r = (End amount / Start amount) - 1


This would include both its debt and its equity.


''Which can also be expressed as:''


3.
r = (End / Start) - 1


''Company law''.
''or''


More narrowly in company law, 'capital' is the component of the total equity represented by the share capital of the company.
r = <math>\frac{End}{Start}</math> - 1




4.  
= <math>\frac{1.03}{1}</math> - 1


''Regulation''.  
= 0.0300


In the regulatory capital context, 'capital' means what the particular regulations say that it means.
= '''3.00%''' per period


Here as elsewhere, care and consistency in definitions is essential.


=== Basis of quoting rates of return ===


The rate of return in the example above has been calculated and stated on a periodic basis.


5.
Rates of return are often also quoted on an annual basis, following the conventional quoting convention for the market in which the proposed deal is being quoted.
 
''Economics''.
 
'Capital' is one of the 'factors of production' in economics, the others classically being labour, land and enterprise.
 
In this context, 'capital' refers to the things that have been created to help in the production process, like machinery, factories and transport facilities. These things are sometimes known as 'capital goods'.




== See also ==
== See also ==
* [[Assets]]
* [[Conventional year]]
* [[Capital adequacy]]
* [[Effective annual rate]]
* [[Capital intensity]]
* [[Nominal annual rate]]
* [[Capital mobility]]
* [[Periodic]]
* [[Capital structure]]
* [[Periodic rate]]
* [[Capital to labour ratio]]
* [[Real return]]
* [[Capitalisation]]
* [[Return]]
* [[Cost of capital]]
* [[Yield]]
* [[Credit balance]]
* [[Debt capital]]
* [[Enterprise]]
* [[Equity cost of capital]]
* [[Factors of production]]
* [[Finance ]]
* [[Investment bank]]
* [[Labour]]
* [[Land]]
* [[Liabilities]]
* [[Regulatory capital]]
* [[Servitisation]]
* [[Share capital]]
* [[Working capital]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Corporate_finance]]
[[Category:Compliance_and_audit]]

Revision as of 17:01, 19 November 2015

The investor's return on an investment, expressed as a proportion of the amount invested.

Most commonly expressed as a percentage.


Example

GBP 1 million is invested.

GBP 1.03 million is repayable at the end of the period.


The rate of return per period (r) is:

r = (End amount / Start amount) - 1


Which can also be expressed as:

r = (End / Start) - 1

or

r = <math>\frac{End}{Start}</math> - 1


= <math>\frac{1.03}{1}</math> - 1

= 0.0300

= 3.00% per period


Basis of quoting rates of return

The rate of return in the example above has been calculated and stated on a periodic basis.

Rates of return are often also quoted on an annual basis, following the conventional quoting convention for the market in which the proposed deal is being quoted.


See also

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