Excess Return

Knowledge Center



Summary, forum, best practices, expert tips and information sources.


Summary

What is Excess Return? Description

Excess Return is the difference between actual wealth and expected wealth at the end of the measurement period. Good methodology to evaluate top management of public companies.


Excess Return calculation

The formula of Excess Return is straightforward:

     

       Actual Wealth (N)

-      Expected Wealth (N)

------------------------------------------------------

       Excess Return (N)


Actual Wealth is the future value of all the cashflows received over the measurement period.

Expected Wealth is the future value of the initial investment.


N is the number of periods over which the Excess Return is calculated.


Excess Return and MVA

Unlike MVA, Excess Return debits a company for the capital it has used since the beginning of the measurement period. And companies are credited for the returns their shareholders should have earned from dividends and share buybacks, reinvested in the market. Also unlike MVA, Excess Return does take into account intermediate cash returns to shareholders. Therefore Maximizing Excess Return should be the financial goal of any value-based corporation.


Limits of Excess Return

Excess Return can only be used at firm / corporate level and is not practical for performance evaluation over a specific period of time, since it is equities based, i.e. it expresses value accumulated as of a certain date.


Special Interest Group

Join

Excess Return Special Interest Group.



Special Interest Group (8 members)

Forum

New Topic

Forum about Excess Return.


🔥 NEW What is the Equity Risk Premium?
Jason Voss, in the FT on 7th November 2011 described the Equity Risk Premium (ERP) as follows "the additional rate of re (...)
5
 
0 reactions
Best Practices

Sign up

The top-rated topics about Excess Return. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Sign up

Advanced insights about Excess Return. Here you will find professional advices by experts.


Information Sources

Sign up

Various sources of information regarding Excess Return. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


NewsVideosPresentationsBooksMore

Compare with Excess Return:  MVA


Return to Management Hub: Decision-making & Valuation  |  Finance & Investing


More Management Methods, Models and Theory

Special Interest Group

Are you interested in Excess Return? Sign up for free

Notify your students

Copy this into your study materials:

and add a hyperlink to:

Link to this knowledge center

Copy this HTML code to your web site:

 


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2021 12manage - The Executive Fast Track. V15.7 - Last updated: 26-1-2021. All names ™ of their owners.