The compound annual growth rate (CAGR) is basically the average yearly growth rate of an investment over a span longer than a year. It’s a reliable method for figuring out returns on individual assets, investment portfolios, or anything that can change in value over time. You’ll often hear CAGR thrown around by investment advisors trying

Net present value (NPV) is basically the gap between the current value of cash coming in and the current value of cash going out over a certain timeframe. It’s a key tool in capital budgeting and investment planning to figure out how profitable a project might be. To calculate Net Present Value, you determine the

IRR, or internal rate of return, is a key figure in finance that helps gauge how profitable an investment might be. It’s essentially the discount rate that brings the net present value (NPV) of all cash flows to zero when you’re doing a discounted cash flow analysis. Calculating Internal Rate of Return uses the same

A rate of return (RoR) is basically how much money you make or lose on an investment over a certain time frame, shown as a percentage of what you initially put in. When you figure out the rate of return, you’re looking at how much the value has changed from the start to the finish

The required rate of return (RRR) is basically the lowest return an investor is willing to accept for holding a company’s stock, reflecting the risk involved. It’s also a key concept in corporate finance for evaluating how profitable potential investment projects might be. You might hear RRR referred to as the hurdle rate, which signifies

Weighted average cost of capital (WACC) is basically the average cost a company pays for its capital after taxes, pulling from various sources like common stock, preferred stock, bonds, and other debts. It shows the typical rate a company anticipates paying to fund its operations. WACC is often used to figure out the required rate

Invested capital refers to the overall funds a company gathers by selling shares to equity investors and borrowing from bondholders. Return on invested capital (ROIC) helps assess how effectively a company uses its capital for profitable ventures. To calculate invested capital, you combine total debt and capital lease obligations with the equity raised from investors.

Return on invested capital (ROIC) measures how well a company is using its capital to make profitable investments. You calculate it by taking the net operating profit after tax (NOPAT) and dividing it by the invested capital. ROIC helps you understand how efficiently a company is turning its capital into profits. By comparing a company’s

Return on equity (ROE) is a key indicator of how well a company is doing financially. You get it by dividing the net income by the shareholders’ equity. Since shareholders’ equity is basically the company’s assets minus its debts, ROE gives you a snapshot of how well a company is using its net assets to

Return on assets (ROA) is a financial metric that shows how well a company is doing in terms of profitability compared to its total assets. It’s a handy tool for corporate managers, analysts, and investors to figure out how effectively a company is utilizing its resources to make a profit. Learn more about Return on