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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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At managerial level, companies use summary measures of aggregate performance, using monetary terms such as profits, accounting returns and market returns, but none of these is perfect on its own.
Penman (2001) examined the relationship between interest rates and accounting returns and growth.
(2005) also propose that accounting returns and market measures represent two distinct dimensions of firm performance.
In their paper the author found marginal evidence that accounting returns cause stock returns.
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Letsinger noted that all syndicates currently have to file annual accounting returns. She described this as the first step toward converting to U.K.
The pair-wise correlations in Table III suggest that firms with committee insiders have lower stock and accounting returns, more concentrated ownership structures, and pay their CEOs a lower salary.

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