Business, Legal & Accounting Glossary
A financial tool that measures the yield a company receives upon re-investing its profits into the business. RORE is essential in making a decision to purchase stock, and also helps a company to decide whether to immediately pay out interests to its shareholders or re-invest it for greater yield.
Return On Retained Earnings (RORE) is a calculation that shows how well the profits of the previous year were reinvested. RORE is expressed as a percentage.
The Return On Retained Earnings formula compares the total amount of profit per share retained by a company over a given period of time against the change in profit per share over that same time period.
Using the formula for Return On Retained Earnings, an investor can determine whether it’s worth it for a company to keep its profits. A high percentage would indicate that a company would be better off reinvesting into the business, whereas a low one would show that paying out dividends may be in the best interests of the company.
A way to evaluate management effectiveness is to measure how much market value has been added by the company’s retention of capital. Impressive market value gains mean that investors can trust management to extract value from capital retained by the business.
RORE
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This glossary post was last updated: 20th November, 2021 | 0 Views.