Capital Markets

Profitability Ratios

What are Profitability Ratios? Profitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders’ equity during a specific period of time. They show how well a company utilizes its assets to produce...

Continuously Compounded Return

What is Continuously Compounded Return? Continuously compounded return is what happens when the interest earned on an investment is calculated and reinvested back into the account for an infinite number of periods. The interest is calculated on the principal amount and the interest accumulated over the given periods and reinvested back into the cash balance....

Risk-Adjusted Return Ratios

What are the Risk-Adjusted Return Ratios? There are a number of risk-adjusted return ratios that help investors assess existing or potential investments. The ratios can be more helpful than simple investment return metrics that do not take the level of investment risk into account. Risk-Adjusted Return Ratios – Sharpe Ratio The Sharpe ratio calculates how...

Capital Asset Pricing Model (CAPM)

What is CAPM? The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. Below...

Return on Equity (ROE)

What is Return on Equity (ROE)? Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage (e.g., 12%). Alternatively, ROE can also be derived by dividing the firm’s dividend growth rate by its earnings retention rate (1 –...
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