Risk Adjusted Return on Capital

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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 ?
The company offers the application within the property/casualty industry of enterprise-risk modeling using risk-adjusted return on capital methodologies.
The product delivers a robust economic capital and risk-adjusted return on capital (RAROC) framework for linking risk to required capital.
This pricing adjustment can be calculated via a risk/return framework such as risk-adjusted return on capital, which is known by the acronym RAROC.
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