Risk Adjusted Return on Capital Calculator

✖Revenue is the income that a business has from its normal business activities, generally from the sale of goods and services to customers.ⓘ Revenue [R]			+10% -10%
✖Expenses refers to the cost incurred or the outflow of resources, typically money, in exchange for goods, services, or other items that are consumed.ⓘ Expenses [e]			+10% -10%
✖Expected Loss, in the context of risk management and finance, refers to the average amount of loss that is anticipated to occur over a specified period of time.ⓘ Expected Loss [el]			+10% -10%
✖Income From Capital refers to the income which equals capita charges multiplied with risk free rate.ⓘ Income From Capital [ifc]			+10% -10%
✖Capital Cost is fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services.ⓘ Capital Cost [P_Capital]			+10% -10%

✖Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account.ⓘ Risk Adjusted Return on Capital [RAROC]

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Formula

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Risk Adjusted Return on Capital

Formula

`"RAROC" = ("R"-"e"-"el"+"ifc")/"P"_{"Capital"}`

Example

`"374.15"=("780000"-"47000"-"6700"+"22000")/"2000"`

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Risk Adjusted Return on Capital Solution

STEP 0: Pre-Calculation Summary

Formula Used

Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost
RAROC = (R-e-el+ifc)/P_Capital
This formula uses 6 Variables

Variables Used

Risk Adjusted Return on Capital - Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account.
Revenue - Revenue is the income that a business has from its normal business activities, generally from the sale of goods and services to customers.
Expenses - Expenses refers to the cost incurred or the outflow of resources, typically money, in exchange for goods, services, or other items that are consumed.
Expected Loss - Expected Loss, in the context of risk management and finance, refers to the average amount of loss that is anticipated to occur over a specified period of time.
Income From Capital - Income From Capital refers to the income which equals capita charges multiplied with risk free rate.
Capital Cost - Capital Cost is fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services.

STEP 1: Convert Input(s) to Base Unit

Revenue: 780000 --> No Conversion Required
Expenses: 47000 --> No Conversion Required
Expected Loss: 6700 --> No Conversion Required
Income From Capital: 22000 --> No Conversion Required
Capital Cost: 2000 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

RAROC = (R-e-el+ifc)/P_Capital --> (780000-47000-6700+22000)/2000

Evaluating ... ...

RAROC = 374.15

STEP 3: Convert Result to Output's Unit

374.15 --> No Conversion Required

FINAL ANSWER

374.15 <-- Risk Adjusted Return on Capital

(Calculation completed in 00.004 seconds)

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Created by Kashish Arora

Satyawati College (DU), New Delhi

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< 20 Risk Management Calculators

Risk Adjusted Return on Capital

Go Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost

Sortino Ratio

Go Sortino Ratio = (Expected Portfolio Return-Risk Free Rate)/Standard Deviation of Downside

Maximum Drawdown

Go Maximum Drawdown = ((Trough Value-Peak Value)/Peak Value)*100

Modigliani-Modigliani Measure

Go Modigliani-Modigliani measure = Return on Adjusted Portfolio-Return on Market Portfolio

Interest Rate Risk

Go Interest Rate Risk = (Original Price-New Price)/New Price

Sterling Ratio

Go Sterling Ratio = (Compound Annual Growth Rate/(Average Maximum Drawdown-10))*-1

Risk Tolerance

Go Risk Tolerance = (Public Equity Exposure*0.35)/Monthly Gross Income

Market Risk Premium

Go Market Risk Premium = Expected Equity Market Rate-Risk Free Rate

Basis Risk

Go Basis Risk = Future Price of Contract-Spot Price of Hedged Asset

Credit Value at Risk

Go Credit Value at Risk = Worst Credit Loss-Expected Credit Loss

Economic Capital

Go Economic Capital = Earnings at Risk/Required Rate of Return

Calmar Ratio

Go Calmar Ratio = (Average Rate of Return/Maximum Drawdown)*-1

Upside/Downside Ratio

Go Upside/Downside Ratio = Advancing Issues/Declining Issues

Credit Spread

Go Credit Spread = Corporate Bond Yield-Treasury Bond Yield

Probability of Default Regression Model

Go Probability of Default = 1/(1+exp(-Linear Combination))

Default Risk Premium

Go Default Risk Premium = Interest Rate-Risk Free Rate

Pain Ratio

Go Pain Ratio = Effective Return/Pain Index

Risk Exposure

Go Risk Exposure = Risk Impact*Probability

Risk Determination

Go Risk = Risk Impact*Likelihood

Loss Given Default

Go Loss Given Default = 1-Recovery Rate

Risk Adjusted Return on Capital Formula

Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost
RAROC = (R-e-el+ifc)/P_Capital

What is Risk-Adjusted Return On Capital (RAROC)?

Risk-adjusted return on capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account. In financial analysis, projects and investments with greater risk levels must be evaluated differently; RAROC thus accounts for changes in an investment’s profile by discounting risky cash flows against less-risky cash flows.
It is a useful tool in assessing potential acquisitions. The general underlying assumption of RAROC is investments or projects with higher levels of risk offer substantially higher returns. Companies that need to compare two or more different projects or investments must keep this in mind.

How to Calculate Risk Adjusted Return on Capital?

Risk Adjusted Return on Capital calculator uses Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost to calculate the Risk Adjusted Return on Capital, Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account. Risk Adjusted Return on Capital is denoted by RAROC symbol.

How to calculate Risk Adjusted Return on Capital using this online calculator? To use this online calculator for Risk Adjusted Return on Capital, enter Revenue (R), Expenses (e), Expected Loss (el), Income From Capital (ifc) & Capital Cost (P_Capital) and hit the calculate button. Here is how the Risk Adjusted Return on Capital calculation can be explained with given input values -> 374.3372 = (780000-47000-6700+22000)/2000.

FAQ

What is Risk Adjusted Return on Capital?

Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account and is represented as RAROC = (R-e-el+ifc)/P_Capital or Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost. Revenue is the income that a business has from its normal business activities, generally from the sale of goods and services to customers, Expenses refers to the cost incurred or the outflow of resources, typically money, in exchange for goods, services, or other items that are consumed, Expected Loss, in the context of risk management and finance, refers to the average amount of loss that is anticipated to occur over a specified period of time, Income From Capital refers to the income which equals capita charges multiplied with risk free rate & Capital Cost is fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services.

How to calculate Risk Adjusted Return on Capital?

Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account is calculated using Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost. To calculate Risk Adjusted Return on Capital, you need Revenue (R), Expenses (e), Expected Loss (el), Income From Capital (ifc) & Capital Cost (P_Capital). With our tool, you need to enter the respective value for Revenue, Expenses, Expected Loss, Income From Capital & Capital Cost and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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