Stock Rate of Return Essay Example | Topics and Well Written Essays - 1000 words

Stock Rate of Return - Essay Example In other words, SRR = Capital gain + Dividend yield. It is actually the benefits reaped by an investor relative to the cost of the initial investment. On the other hand, Return On Common Equity (ROCE) relates to the net income before dividend payments on preference shares etc. It is the rate of return on investment for the company's common shareholders. A firm’s ROCE reveals the profit it generates with the invested money of shareholders. The ROCE is also useful for comparing the profitability of a company to that of other firms. The Stock Rate of Returns and the Return On Common Equity are related to each other in the following ways. (i) Can determine (ROCE) by subtracting preferred dividends from net income and subtracting preferred equity from shareholders' equity, given: ROCE = Net Income - Preferred Dividends / Common Equity, where as the other (Capital gain + Dividend yield) gave the (SRR). (ii) Return on stocks may also be calculated by dividing net income by average sh areholders' equity. (iii) Investors may also calculate the change in ROE for a period, first by using shareholders' equity at the start of the period as the denominator and then using shareholders' equity at the end of the period as the denominator.... irical evidence reported by Penman suggests that, in the 1980-1997 period, median ROCE for NYSE and AMEX firms were on average much lower than Rates of Return on the S&P500. Putting aside the periods from 1990 to 1992 when value's heavily weighted sector declined owing to the S&L crisis, the 51% premium of growth shares is historically low at present versus the 56% average since 1980. Excluding data from the "tech bubble" period when growth P/Es were in excess of two times value multiples; it is still left with a historical average premium of 48%, close to the current value. Recessions tend to begin at the start of the decade, e.g., 1980, 1990, and 2000/01. They last for 18 to 24 months before giving way to a strong recovery that lasts for about two years until the Federal Reserve starts to raise interest rates in order to dampen inflation fears. Usually, mid-cycle and mid-decade, the economy cools and the rate of growth is cut in half as was the case in 1984/85 and 1994/95. If histo ry repeats itself in 2005, the economy will move at a slower pace owing to higher interest rates and energy prices. (1)What is an accounting analysis (2)How does one assess the quality of a firm's accounting and trade on the basis of an accounting analysis (3)What evidence is there of empirical returns to accounting analysis in the context of IPOs Accounting analysis describes the extent to which the use of different accounting methods affects reported results like financial statements of a business. Different financial statements including Trading, Profit and Loss Accounts, Income and expenditure Accounts, Balance sheets etc are recorded with entries for valuation. Thus the accounting analysis could be other wise termed as the financial statement analysis. Accounting analysis