Return on Investments
An Equity Investment generally refers to the buying and holding of Shares of Stock on a Stock Market by individuals and firms in anticipation of income from Dividends and Capital Gains, as the Value of the Stock rises.
Information from INVESTEC ( in 2015 ) shows that South African Shares/ Equity had an average growth of 15 % per annum over the past 20 years and Listed Property 20 % per annum. For Shares/ Equity the best return over the past 20 years was 71 % and the worst year was ( minus ) - 23 % !
WARNING ! If any person or entity therefore promises you a Return of 30 % or 300 % per annum, you should be very suspicious as it is undoubtedly too good to be true ! See our Page on Ponzi Schemes & Fraud above for more details.
South African listed property delivered returns of 26.6 % for 2014, outperforming all other asset classes for the year. Despite tough macro conditions, listed property compared favourably with South African Equities and Bonds which delivered returns of around 10 %, while Cash returned 5.90 %. CLICK above LINK to read the Full Article.
Find comparisons of Interest Rates Wordwide for Savings, Fixed Deposits, Loans, Credit Cards, etc.
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For deposits of R10 000 or more, you’ll earn 6.28 % for 3 months, 6.95 % for 6 months, 7.18 % for 9 months and 7.50 % for 12 months. Your Fixed Deposit Account comprises of a single deposit for a fixed term at a guaranteed fixed interest rate. Click above LINK for info.
Get the best interest rate on your capital and earn up to 10% per annum. Minimum deposit of R 100 000.00.
06 - 11 months 5.50 % ; 12 - 24 months 6.00 %
25 - 36 months 7.00 % ; 37 - 48 months 8.00%
49 - 59 months 9.00 % ; 60 - 66 months 9.50 %
67 - 72 months 10.00 % CLICK above LINK for Info.
Real Return = Minus Inflation Rate
To calculate this means subtracting the Inflation Rate from the Nominal Rate of Return. For example, a Portfolio of Stocks that returns 10 %, when Inflation is running at 6 % only has a 4 % Real Rate of Return.
Particularly pleasing for Private Equity Investors is the reported overall headline return for the ten years to December 2014 of 19.1 %, which outperformed major listed-market indices for the same period, including the FTSE/JSE All Share Total Return Index (ALSI TRI) and the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI). The FINDI TRI marginally outperformed Private Equity. CLICK above Red Heading LINK for full details.
Until early 2000, funding structures in South Africa comprised of only two components : Senior Debt provided by the Banks, and Equity that was provided by Private Equity Funds and other institutions such as the Industrial Development Corporation.
The government's success in introducing a measure of macroeconomic stability and predictability has led to the emergence of a huge potential market for "mezzanine" products, which rank behind Secured Bank Debt but ahead of Equity, which are called hybrid products as they usually combine both debt and equity features. With Senior Debt sourced at rates of 10-15 % and Equity Funds targeting returns of 25-35 %, the space for Funders seeking to earn returns between 15-25 % has ballooned. CLICK the above Read LINK to read the Full Article.
Return on Investment ( ROI )
Return on investment ( ROI ) is performance measure used to evaluate the efficiency of investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs. It is one of most commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions.
If an investment has a positive ROI and there are no other opportunities with a higher ROI, then the investment should be undertaken. A higher ROI means that investment gains compare favorably to investment costs.
ROI is an important financial metric for :
- asset purchase decisions ( such as computer systems, machinery, or service vehicles ).
- approval and funding decisions for projects and programs of different types ( for example marketing programs, recruiting programs, and training programs ).
- traditional investment decisions ( for example management of stock portfolios or the use of Venture Capital ).
Calculation ( Formula )
To calculate return on investment, the benefits (or returns) of an investment are divided by the costs of the investment. The result can be expressed as a percentage or a ratio.
Return on Investment (ROI) = (Gains from Investment – Cost of Investment) / Cost of Investment
It should be noted that the definition and formula of return on investment can be modified to suit the circumstances -it all depends on what is included as returns and costs. For example to measure the profitability of a company the following formula can be used to calculate return on investment.
Return on Investment = Net profit after interest and tax / Total Assets
Norms and Limits
One drawback of ROI is that it by itself says nothing about the likelihood that expected returns and costs will appear as predicted. Neither does it say anything about the risk of an investment. ROI simply shows how returns compare to costs if the action or investment brings the expected results. Therefore, a good investment analysis should also measure the probabilities of different ROI outcomes. It is important to consider both the ROI magnitude and the risks that go with it.
Return On Equity (ROE)
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.
ROE is one of the most important financial ratios and profitability metrics. It is often said to be the ultimate ratio or the ‘mother of all ratios’ that can be obtained from a company’s financial statement. It measures how profitable a company is for the owner of the investment, and how profitably a company employs its equity.
Return on equity is calculated by taking a year’s worth of earnings and dividing them by the average shareholder equity for that year, and is expressed as a percentage:
ROE = Net income after tax / Shareholder's equity
Instead of net income, comprehensive income can be used in the formula's numerator (see state-ment of comprehensive income).
Return on equity may also be calculated by dividing net income by the average shareholders' equity; it is more accurate to calculate the ratio this way:
ROE = Net income after tax / Average shareholder's equity
Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a period to the shareholders' equity at the period's end and dividing the result by two.
A common way to break down ROE into three important components is the DuPont formula, also known as the Strategic Profit model. Splitting the return on equity into three parts makes it easier to understand the changes in ROE over time.
ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets / Shareholder's equity) = Net profit margin * Asset Turnover * Financial leverage
Norms and Limits
Historically, the average ROE has been around 10% to 12%, at least in the US and UK. For stable economics, ROE's more than 12-15% are considered desirable. But the ratio strongly depends on many factors such as industry, economic environment (inflation, macroeconomic risks, etc.).
The higher the ROE, the better. But a higher ROE does not necessarily mean better financial performance of the company. As shown above, in the DuPont formula, the higher ROE can be the result of high financial leverage, but too high financial leverage is dangerous for a company's solvency.