## 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)/PCapital
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)/PCapital --> (780000-47000-6700+22000)/2000
Evaluating ... ...
RAROC = 374.15
STEP 3: Convert Result to Output's Unit
374.15 --> No Conversion Required
374.15 <-- Risk Adjusted Return on Capital
(Calculation completed in 00.004 seconds)
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Satyawati College (DU), New Delhi
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## 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)/PCapital

## 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 (PCapital) 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)/PCapital 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 (PCapital). 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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