MEANING OF RETURN & RATE OF RETURN - Accounts and Finance for Managers

Return is the combination of both the regular income and capital appreciation of the investments. The regular income is nothing but dividend/interest income of the investments. The capital appreciation of the investments are nothing but the capital gains of the investments i.e the difference in between the closing and opening price of the investments.
Return symbolized as follows
opening price of the investments. Return

If the price of a share on April 1 (current year) is Rs 25 and dividend received at the end of the year is Re 1 and the year end price on Mar 31 is Rs. 30

Rate of Return=
Re 1 + (Rs30 – Rs25)
Rs.25
=24%


The next aspect is current yield which is nothing but denomination of the income of the investments only in terms of market price
These two categories, Earnings yield and Capital gains yield

  • Annual Income + beginning price
  • Annual Income = Rs. 1/Rs. 25 = .04 = 4%*
  • Capital Gains = Rs. 5/Rs. 25 = 0.20 = 20%**
    Earnings Yield=
    Earnings per share
    Market price per share
    Capital gains yield=
    Price Change
    Market price per share



    Beginning Price of the share/Investment

Stock & Debenture Rate of Return

  • If it is a share - Dividend will be the annual income and the second one is a capital appreciation.
  • If it is a Debenture - Interest will be the annual income, i.e., coupon rate of interest

And if any capital appreciation is available that could be considered.


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