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A high ROI means the investment's gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. [1] In economic terms, it is one way of relating profits to capital invested.
Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by shareholders and other debtholders. [1] It indicates how effective a company is at turning capital into ...
The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. In most ...
A number of arguments relating to concerns for efficiency and equity may be found in the literature supporting the taxation of capital income, including (1) Corlett-Hague motives, (2) increases in consumption inequality over the life cycle, (3) heterogeneous preferences, (4) correlation between returns on savings and ability, (5) incomplete or ...
The MEC and capital outlays are the elements that a firm takes into account when deciding about an investment project. The MEC needs to be higher than the rate of interest, r, for investment to take place. This is because the present value PV of future returns to capital needs to be higher than the cost of capital, C k. These variables can be ...
This reflects the weak information efficiency model. 3. Full insurance efficiency. This ensures the continuous delivery of goods and services in all contingencies. 4. Functional/Operational efficiency. The products and services available at the financial markets are provided for the least cost and are directly useful to the participants.
Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization ...
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.