Simple rate of return

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Simple rate of return

The return from investments figured by dividing income plus capital gains by the amount of capital invested. The effect of compounding is not taken into account.

Simple Rate of Return

An estimate of the return on an investment. It is calculated simply by finding the investment's profit before taxes and interest expenses. The simple rate of return is easy to calculate but is not always accurate because it considers the investment's profit rather than cash flow. It also does not take into account the effects of compounding. It is also called the accounting rate of return or the book value method.
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An Empirical Analysis of the Effect of Changes in Interest Rates on Accounting Rates of Return, Growth, and Equity Values Doron Nissim and Stephen H.
There are many approaches to try to answer questions relative to measuring firm performance, and one with a particular interesting history involves the differences between economic and accounting rates of return.
Since then, many papers have dealt with empirical measures of economic and accounting rates of return (see e.
McGowan (1983), 'On the Misuse of Accounting Rates of Return to Infer Monopoly Profits', American Economic Review 73 (March), 82-97.
Subsequently, the Mann-Elkins Act, 1910 empowered the ICC to effectively regulate railroads based on accounting rates of return [Covaleski et al, 1995].
Focusing on accounting rates of return also serves our purpose of investigating the stock market's pricing of earnings of varying quality.
Accordingly, it is difficult to focus on a single such arrangement and to identify the correspondence between the contractual choice and firm performance (as measured by accounting rates of return, or Tobin's Q, for example).
For each firm, we computed six performance measures for each of the four years: three accounting rates of return (ROA, ROE, and ROS); stock returns; and EVA and MVA, both expressed as returns on equity value.
Accounting rates of return, such as those analyzed by these authors, have historically been criticized as weak indicators of "true" economic profit.
From these it was possible to calculate accounting rates of return on capital stock (net profits divided by capital stock), market rates of return (dividend payments divided by the market value of capital stock), and the ratio of market to book values of capital stock.
It is doubtful whether the Fisher and McGowan analysis of economic and accounting rates of return can be extended to industry aggregates considered onver thirty years.
Compensation also seemed to be more responsive to variations in accounting rates of return than to stock market rates of return.

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