Rate of Return (RoR) | Definition, Formula, and Example (2024)

FAQs

Rate of Return (RoR) | Definition, Formula, and Example? ›

RoR on Stocks and Bonds

The rate of return is simply the percentage change in value over a period of time. It's calculated by subtracting the initial investment from its final value, then dividing that number by the initial amount invested. It's then multiplied by 100 to get a percentage.

You can calculate the rate of return on your investment by comparing the difference between its current value and its initial value, and then dividing the result by its initial value. Multiplying the result of that rate of return formula by 100 will net you your rate of return as a percentage.

The annual rate of return is the percentage change in the value of an investment. For example: If you assume you earn a 10% annual rate of return, then you are assuming that the value of your investment will increase by 10% every year.

You can calculate the real rate of return by subtracting the inflation rate from the nominal interest rate. For example, if your investment has grown by 10%, and the inflation rate is 4%, then your real rate of return is 6%.

RoR on Stocks and Bonds

If the investor sells the stock for $80, their per-share gain is $80 - $60 = $20. In addition, they have earned $10 in dividend income for a total gain of $20 + $10 = $30. The rate of return for the stock is thus a $30 gain per share, divided by the $60 cost per share, or 50%.

To calculate the rate of return for this investment, the investor would use the formula: Rate of return = (Ending value – Beginning value) / Beginning value.

Return on Investment (ROI)

Return on investment—sometimes called the rate of return (ROR)—is the percentage increase or decrease in an investment over a set period. It is calculated by taking the difference between the current or expected value and the original value divided by the original value and multiplied by 100.

Calculate Simple Rate of Return

Take your annual net income and divide it by the initial cost of the investment. In this case, a $37,000 net operating income divided by $200,000 leaves you with a simple rate of return of 18.5 percent.

Key Takeaways

Return on investment (ROI) is an approximate measure of an investment's profitability. ROI is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and finally, multiplying it by 100.

How to find RoR? ›

There must be two values that are known to calculate the rate of return; the current value of the investment and the original value. To calculate the rate of return subtract the original value from the current value, divide the difference by the original value, then multiply by 100.

ARR stands for Accounting Rate of Return. It is a financial metric used to assess the profitability of an investment by comparing the average annual accounting profit generated by the investment to its initial cost. It is calculated as follows:ARR = (Average Annual Profit / Initial Investment) × 100.

How Do You Explain Irr To Dummies? IRR, or Internal Rate of Return, is a percentage that shows how much money an investment is expected to make each year. It's like a project's interest rate, helping you compare profitability.

R-O-R is the general formula for Symmetrical Ethers,in which both alkyl groups attached on oxygen are same . Ethers are organic compounds,in which two alkyl groups are attached on either side of an oxygen atom. It needn't be that the both alkyl groups are same. In general,the formula for Ethers is R-O-R' .

A simple rate of return is calculated by subtracting the initial value of the investment from its current value, and then dividing it by the initial value. To report it as a %, the result is multiplied by 100.

The average rate of return is calculated as the total net profit of an investment (total cash inflows minus total cash outflows), divided by the length of the investment, divided by the invested capital. The main drawback of this return metric is that it does not take into account the time value of money.

Sometimes, they can be used interchangeably, but there is a big difference: ROR can denote a period of time, often annually, while ROI doesn't.

The average rate of return is calculated as the total net profit of an investment (total cash inflows minus total cash outflows), divided by the length of the investment, divided by the invested capital. The main drawback of this return metric is that it does not take into account the time value of money.

Return on Assets Formula (ROA)

The return on assets (ROA) metric is calculated using the following formula, wherein a company's net income is divided by its average total assets. Where: Net Income = Pre-Tax Income (EBT) – Taxes. Average Total Assets = (Beginning + Ending Total Assets) ÷ 2.