what is a return 
a return also known as a financial return in its simplest terms is the money made or lost on an investment over some period of time a return can be expressed nominally as the change in dollar value of an investment over time a return can also be expressed as a percentage derived from the ratio of profit to investment returns can also be presented as net results after fees taxes and inflation or gross returns that do not account for anything but the price change it even includes a 401 k investment understanding a returnprudent investors know that a precise definition of return is situational and dependent on the financial data input to measure it an omnibus term like profit could mean gross operating net before tax or after tax an omnibus term like investment could mean selected average or total assets a holding period return is an investment s return over the time that it is owned by a particular investor holding period return may be expressed nominally or as a percentage when expressed as a percentage the term often used is rate of return ror for example the return earned during the periodic interval of a month is a monthly return and of a year is an annual return often people are interested in the annual return of an investment or year over year yoy return which calculates the price change from today to that of the same date one year ago returns over periodic intervals of different lengths can only be compared when they have been converted to same length intervals it is customary to compare returns earned during yearlong intervals the process of converting shorter or longer return intervals to annual returns is called annualization nominal returna nominal return is the net profit or loss of an investment expressed in the amount of dollars or other applicable currency before any adjustments for taxes fees dividends inflation or any other influence on the amount it can be calculated by figuring the change in the value of the investment over a stated time period plus any distributions minus any outlays distributions received by an investor depend on the type of investment or venture but may include dividends interest rents rights benefits or other cash flows received by an investor outlays paid by an investor depend on the type of investment or venture but may include taxes costs fees or expenditures paid by an investor to acquire maintain and sell an investment for example assume an investor buys 1 000 worth of publicly traded stock receives no distributions pays no outlays and sells the stock two years later for 1 200 the nominal return in dollars is 1 200 1 000 200 a positive return is the profit or money made on an investment or venture likewise a negative return represents a loss or money lost on an investment or venture real returnthe real rate of return is adjusted for changes in prices due to inflation or other external factors this method expresses the nominal rate of return in real terms which keeps the purchasing power of a given level of capital constant over time adjusting the nominal return to compensate for factors such as inflation allows you to determine how much of your nominal return is real return knowing the real rate of return of an investment is very important before investing your money that s because inflation can reduce the value as time goes on just as taxes also chip away at it investors should also consider whether the risk involved with a certain investment is something they can tolerate given the real rate of return expressing rates of return in real values rather than nominal values particularly during periods of high inflation offers a clearer picture of an investment s value the total return for a stock includes both capital gains and losses and dividend income while the nominal return for a stock depicts only its price change return ratiosreturn ratios are a subset of financial ratios that measure how effectively an investment is being managed they help to evaluate if the highest possible return is being generated on an investment in general return ratios compare the tools available to generate profit such as the investment in assets or equity to net income return ratios make this comparison by dividing selected or total assets or equity into net income the result is a percentage of return per dollar invested that can be used to evaluate the strength of the investment by comparing it to benchmarks like the return ratios of similar investments companies industries or markets for instance return of capital roc means the recovery of the original investment a percentage return is a return expressed as a percentage it is known as the return on investment roi roi is the return per dollar invested roi is calculated by dividing the dollar return by the initial dollar investment this ratio is multiplied by 100 to get a percentage assuming a 200 return on a 1 000 investment the percentage return or roi is 200 1 000 100 20 return on equity roe is a profitability ratio calculated as net income divided by average shareholder s equity that measures how much net income is generated per dollar of stock investment if a company makes 10 000 in net income for the year and the average equity capital of the company over the same time period is 100 000 then the roe is 10 return on assets roa is a profitability ratio calculated as net income divided by average total assets that measures how much net profit is generated for each dollar invested in assets it determines financial leverage and whether enough is earned from asset use to cover the cost of capital net income divided by average total assets equals roa for example if net income for the year is 10 000 and total average assets for the company over the same time period is equal to 100 000 then the roa is 10 000 divided by 100 000 or 10 yield vs returnyield and return are sometimes used interchangeably in finance however depending on the context they can also take on different meanings in some such cases yield is taken as a subset of return yield in the context of fixed income for example is the income generated by an investment usually expressed as a percentage of the investment s price or face value for instance a bond with a face value of 1 000 and an annual coupon interest payment of 50 would have a yield of 5 return on the other hand encompasses both the income generated by an investment and any capital gains or losses that result from changes in the investment s market price pay attention to the context within which these terms are being used to understand whether they refer to the same thing or something slightly different 