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Cost of equity formula

Accounting Tools

The cost of equity is the return that an investor expects to receive from an investment in a business. The formula is: (Dividends per share for next year รท Current market value of the stock) + Dividend growth rate For example, the expected dividend to be paid out next year by ABC Corporation is $2.00 government security.

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Opportunity cost of capital definition

Accounting Tools

The opportunity cost of capital is the incremental return on investment that a business foregoes when it elects to use funds for an internal project, rather than investing cash in a marketable security. The opportunity cost of capital is the difference between the returns on the two projects.

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Cook the books definition

Accounting Tools

Incorrect Expense Reserves A more subtle cooking the books practice is setting up expense reserves , such as the allowance for doubtful accounts , that do not reflect the actual loss rate. Related Articles Big Bath Creative Accounting Earnings Management Income Smoothing Managed Earnings Several ways to cook the books are noted below.

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Simple rate of return definition

Accounting Tools

Related Courses Capital Budgeting Corporate Finance Treasurer's Guidebook What is the Simple Rate of Return? The simple rate of return is the incremental amount of net income expected from a prospective investment opportunity, divided by the investment in it.

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Average rate of return definition

Accounting Tools

Related Courses Capital Budgeting Financial Analysis Real Estate Investing What is the Average Rate of Return? The average rate of return is the average annual amount of cash flow generated over the life of an investment. The average of this amount is $30,000.

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Efficiency ratios

Accounting Tools

The following are considered to be efficiency ratios: Accounts Receivable Turnover Accounts receivable turnover is calculated as credit sales divided by average accounts receivable. Inventory Turnover Inventory turnover is calculated as the cost of goods sold divided by average inventory.

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Annualized rate definition

Accounting Tools

Related Courses Corporate Finance Financial Analysis What is the Annualized Rate? The annualized rate is the computed amount of return that would be realized if a short-term investment were to be extrapolated for a period of one year.