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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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.
2005) also propose that accounting returns and market measures represent two distinct dimensions of firm performance.
The evidence of volatile performance was less complete, but there was a strong indication that CEO narcissism was associated with large annual fluctuations in accounting returns (ROA).
It is important to note that these results are based on accounting returns where firms can take advantage of the tax incentives, such as dividend distributions policy, principal and interest deductions on ESOP loans, provided under ERISA rules.
The purpose of this paper is to investigate the impact of bank asset composition on accounting returns.
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.
As a result, any inconsistency we might observe with accounting returns would not be evident in stock returns.
Should we rely on accounting returns - ROA, ROI, ROE, ROS, and profit margin?
During the 1980s, a CEO who increased his or her firm's market and accounting returns by one-half standard deviation over the means in our sample would have generated compensation increases equivalent to roughly 15 percent of total compensation.
On the other hand, when companies such as those in the oil industry have been accused of abusing their market power, as evidenced by excessive accounting profitability, they tried to "explain away" high accounting returns by claiming that these standard metrics do not adequately measure real economic returns.

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