Every economic activity has the purpose of making a profit (or positive return). And what it is from an economic point of view? The answer to this question will be addressed in the article. Also will stipulate that such rate of return and how to calculate.
Under the yield in economic Sciences implies a relative measure which shows the effectiveness of investments in individual assets, projects, financial instruments, or in a business. From a mathematical point of view this indicator can be considered as the ratio of the total amount of cash received to a database. What's it mean?
The "base" understand the amount of the initial investment or the amount of money needed to invest to get this amount of money. Therefore, the performance evaluation system is also called rate of return. Can this indicator be considered with the negative side? Yes, the yield can be positive and negative. Under the first understand that the company returned the money and still have plus. A negative yield implies that the investment does not pay off and talking about net profit not necessary.
This indicator is required to assess the effectiveness of invested funds. Rate of return – is a term used to denote the efficiency of invested funds. So if there is the word “internal”, it means that the current value of an investment is zero and all funds received, which are both profit from economic activity, equal to the cost at the commencement of the business or project. It can help to determine the level of investment, which in any case will cost no loss to the owner of the money. Using the internal rate of return shows the level of profitability of the investments and the maximum amount that it makes sense to invest in this enterprise.
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If you buy shares, how to know their past, how they bring profit to their owners a month or a year ago? Especially for this there are special ratings returns. They select the best securities that provide the greatest benefit in the short term. Revenue rankings in addition to earnings may contain indicators of value. And if the securities of the enterprise quoted on the stock exchange for a long time-years or decades, we can estimate the trend of their development and to better approach the decision to buy them or not. The yield – this is a serious indicator and should be defined using the maximum amount of information.
How to calculate earnings? To do this, use a simple formula:
D = (SFAK - SPANP) / SPANP.
The cuts are deciphered as follows:
As values can be used and predictive values. So, it is possible to know the value of the stock at the beginning of the year, expect to see the cost and decide to acquire a security or not. But to do something, having before him only the forecasted yield, – it is a thankless job. Does not hurt to know about the situation in past years.
When a comparison is made rational investment strategies, the yield and risk is always when changes are moving in the same direction, ceteris paribus. So, the higher the profits, the greater are the risks.
To clarify, you can use the example: the Bank come two people. First, a rich citizen who has a stable and well-paying job, a house and asks to give him credit. The loan is issued at 20% per annum. The second person odd jobs, drink too much alcohol and has a number of other bad habits. He was given a loan at 40 %. Further, the Bank all obligations of such people, as man # 2, and completes in a single portfolio of securities and sells such a high level of profitability. But if you think about it: where it is possible to earn more? The second embodiment of the profitability more. With the first person yields lower. But there is also less likelihood that he will refuse to pay you the money. Therefore, when considering proposals for investment, it should be remembered that the yield – this is not the only parameter that should be considered.
So at the end we can conclude: the higher the yield, the greater the risk. Excessively high possibility of losses on investments are not attractive for investors, so most prefer their money spent on something relatively safe and stable. The yield – the option is mandatory, because without it there is no sense to invest in something.
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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."
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