Risk Adjusted Return on Capital


Also found in: Wikipedia.

Risk Adjusted Return on Capital

A measure of the profitability of an investment or business after accounting for its risk. This can help inform one's investment decisions. It is calculated as follows:

RAROC = ( revenue - expenses - expected loss + income from capital invested ) / capital

It should be noted that an investment's RAROC has become a less common measure than the risk adjusted return on risk adjusted capital (RARORAC).
References in periodicals archive ?
RMS, Oliver Wyman & Company, and eRisks are partners in the development of P&C RAROC, Property & Casualty Risk Adjusted Return on Capital, a set of proprietary methodologies to assist Property and Casualty insurers and reinsurers in managing risk, capital and shareholder value across all risk types and activities.
Over the past 10 years, Oliver Wyman & Company has assisted many of the world's largest commercial and investment banks in developing methodologies that link risk to required capital (Economic Capital) and measure Risk Adjusted Return on Capital (RAROC).
Full browser ?