Glossary

Return on equity

A measure of financial performance calculated by dividing net income by shareholders’ equity

Preferred return

Preferred return – a preferred return is a return that needs to be earned by an investor before lower ranking (often ordinary shareholders or, in the private equity world, General Partners) can earn a return. In some contexts this is also referred to as a hurdle rate.

Absolute return

When investors talk about absolute returns they are talking about the actual return an investment makes rather than how it does relative to an index or benchmark. Absolute return funds usually aim to make investors money rather than outperform an index or benchmark – after all the index / benchmark might be falling and, while […]

ROE

ROE is an acronym for return on equity. It is calculated by dividing net profits/income by shareholders’ equity (the figure on the bakance sheet that represents the value of the company that shareholders own after deducting all debt and anyone else’s interests in the company.

Carried interest or carry

Carried interest or carry is a term used in the private equity world to describe the performance related fee that a general partner can earn from a successful investment. Often the limited partnership investors will agree a deal with the general partner whereby, if cash is freed up from an investment, the limited partnership investors first get […]

Gross redemption yield

Gross redemption yield or GRY is a measure of the rate of return offered by an investment up until the date it matures. It is usually expressed as an annualised percentage – a bit like an interest rate. Subscribe for free equity research on investment trusts, funds and listed companies.

Waterfall Arrangement

A waterfall arrangement or waterfall payment scheme describes the order in which creditors get paid. Two common uses of the term are within the debt and private equity sectors. In a debt context, it is commonly used to describe the seniority of debt liabilities. In the first instance, money flows to repay the most senior debt […]

Preference shares

Preference shares earn a preferred return, usually a fixed dividend, and usually also have a fixed entitlement on a winding up. They will usually get paid out before the ordinary shares on a winding up. Click here to subscribe for free equity research on investment trusts, funds and listed companies.

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Glossary

Return on equity