Return On Revenue - ROR

  

Categories: Investing, Metrics

The formula: "Return" here is usually net income; it goes into the numerator. Then in the denominator? Rhymes with shmevenues.

It's like saying "net profit margin." Same thing, more or less.

Related or Semi-related Video

Finance: What are Time-Weighted Rate Of ...1 Views

00:00

Finance allah shmoop what are time and risk waited rates

00:06

of return a dollar today is worth more than a

00:10

dollar tomorrow Like that's the central prayer of the financial

00:15

force Here's the gist You've double your money in an

00:17

investment Is that good Bad ugly mon We need a

00:20

whole lot more information here Tto answer Did you buy

00:22

thirty eight million and two dollars worth of lottery tickets

00:26

and that last two dollar ticket got you seventy six

00:28

million in winnings Was that like a good investment Or

00:33

how about this You took thirty six years to double

00:35

your money Was that good I answer to both No

00:38

not at all The lottery ticket example is a risk

00:42

waited return The lottery famously takes advantage of ignorant people

00:46

spending their hard earned money on tickets representing dreams but

00:50

which have horrible odds of any kind of decent pay

00:52

back But the lottery makes go into a vegas casino

00:55

look like actually a good deal so you may win

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but it's a bad risk no matter how you look

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at it And hey somebody has to pay those teacher

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pension bill So why shouldn't it be people who didn't

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graduate high school Right Well the time waiting is a

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big deal to in a world where the stock market

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broadly speaking doubles on its own About every eight nine

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ten twelve years Something like that This calculation is done

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over very long periods of time and it's held true

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for about a century and change in america So if

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he took thirty six years to double your money well

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it implies you only made two percent a year as

01:28

your rate of return Remember that rule of seventy two

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thing Yeah that right there Seventy two divided by thirty

01:33

six and you get a whopping two percent return Well

01:36

in that same period of time the market might have

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doubled in four times So the ten grand that double

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to be twenty grand in thirty six freakin years under

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your watch we'll have you just put it into an

01:47

index fund of the s and p five hundred over

01:50

that same time period Well it would have doubled once

01:52

along the timeline here to be twenty grand then doubled

01:55

again here to be forty grand and then doubled again

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here to be a tigre rine and then ah forthe

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doubling right here after thirty six years maybe one hundred

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sixty grand And that's just an index fund Nothing fancy

02:07

Not warren buffett Just a basic vanilla index fund that

02:10

anyone with two hundred fifty bucks in their pocket can

02:13

buy And it's worth noting dividends which often get ignored

02:17

in the financial press actually matter a ton when it

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comes to the calculation of long term investment results Generally

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speaking that continued payment of dividends is a low risk

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adventure Very few companies ever cut or fully do away

02:28

with their dividends And if they do well it means

02:31

a pretty much everything is rotten in denmark so you

02:34

can count on dividends The bolster overall returns that historically

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dividends have had a wide range of somewhere between two

02:40

and seven or eight percent for the mid range of

02:43

the s and p five hundred But if you pegged

02:45

them around and three ish percent today and changed to

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reflect the modern era well then the overall market need

02:50

only compounded about five percent To deliver that five plus

02:54

three percent and change eight ish percent total returns That

02:57

will allow the stock market to double about every nine

03:00

years or so right so we're ignoring taxes here but

03:03

we're ignoring the use of dividends proceeds to buy more

03:05

shares every quarter as well when those dividends air paid

03:08

So when you think about time and risk think about

03:10

them like they're a kind of financial stone soup which

03:13

when mixed together with the right spices of tax hedges

03:16

leverage and a bull market well make a really nice

03:19

retirement meal and you don't even need your teeth on 00:03:22.773 --> [endTime] a bonus

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