- risk-adjusted return on capital
- risk-adjusted return on capital ( RAROC)An economic approach to measure unit and product profitability within a financial institution. Returns, adjusted to reflect normalized or expected losses, are divided by an amount of capital that is carefully quantified to reflect the risk or risks incurred to generate those returns. The total risk-adjusted capital for an entire financial institution reflects its calculated economic capital. Economic capital is the capital required to support the incurred risks. Economic capital will rarely, if ever, equal accounting or book-value capital. The risk-adjusted return on capital is usually compared to a standard or hurdle rate of return. When such comparisons are made, products or units with returns exceeding the hurdle rate are said to add value while products or units with returns below the hurdle rate are said to destroy value. RAROC is not always defined and applied exactly the same way by different financial institutions but must be defined and applied consistently throughout each financial institution that uses it.Often referred to by the acronym RAROC, pronounced "ray-rock."
Financial and business terms. 2012.
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Risk adjusted return on capital — (RAROC) is a risk based profitability measurement framework for analysing risk adjusted financial performance and providing a consistent view of profitability across businesses. The concept was developed by Bankers Trust in the late 1970s. Note,… … Wikipedia
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risk-adjusted return on capital — RAROC A measure of the performance of units within a bank or financial organization, be they managerial units, products, distributional units, or such treasury based units as trading desks. It was developed by Bankers Trust and the Bank of… … Big dictionary of business and management
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risk-adjusted return — The profit, often but not always expressed as a percentage rate of return on allocated capital, after recognizing applicable costs for credit risk, interest rate risk, liquidity risk and/or other financial risks. In some measures, risk costs are… … Financial and business terms
Return on capital — Return on invested capital (ROIC) is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. It is defined as Net operating profit less adjusted taxes divided by Invested … Wikipedia
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risk adjusted performance measure — RAPM Misura di redditività di un operazione, di un cliente, di un area di risultato o di un unità organizzativa. Per ottenere una misura RAP occorre mettere a confronto il margine economico ( al netto delle perdite attese ) associabile ad una … Glossario di economia e finanza