Rate of return

In <a href="/facts/Finance/fLh1GgN8">finance</a>, return is a <a href="/facts/Profit_(accounting)/8W9Kw0fx">profit</a> on an <a href="/facts/Investment/VrMookcv">investment</a>. It comprises any change in value of the investment, and/or <a href="/facts/Cash_flows/TM2tHnlW">cash flows</a> (or securities, or other investments) which the investor receives from that investment over a specified time period, such as <a href="/facts/Interest/qfNEuKg0">interest</a> payments, <a href="/facts/Coupon_(finance)/dEY27Cne">coupons</a>, <a href="/facts/Dividends/Na89kYjp">cash dividends</a> and <a href="/facts/Common_stock_dividend/7RR532MF">stock dividends</a>. It may be measured either in absolute terms (e.g., dollars) or as a percentage of the amount invested. The latter is also called the <a href="/facts/Holding_period_return/J7RYsqSm">holding period return</a>.
A loss instead of a profit is described as a <a href="/facts/Negative_return_(finance)/tV5l31Bf">negative return</a>, assuming the amount invested is greater than zero.
To compare returns over time periods of different lengths on an equal basis, it is useful to convert each return into a return over a period of time of a standard length. The result of the conversion is called the rate of return.
Typically, the period of time is a year, in which case the rate of return is also called the annualized return, and the conversion process, described below, is called annualization.
The <a href="/facts/Return_on_investment/M8qYt4Yf">return on investment</a> (ROI) is return per dollar invested. It is a measure of investment performance, as opposed to size (c.f. <a href="/facts/Return_on_equity/fXV4hfYz">return on equity</a>, <a href="/facts/Return_on_assets/D12TtauE">return on assets</a>, <a href="/facts/Return_on_capital_employed/Wyn6nvqn">return on capital employed</a>).

Rate of return open-in-new

Rate of return