10 Ways to Calculate Investment Yield (and Why You Should Care) - Advanced Forex Strategies

10 Ways to Calculate Investment Yield (and Why You Should Care)

Investment yield can refer to one of two things: the financial return on investment, or ROI, that an investor receives from a certain asset; and the total rate of return on investment over a specific period of time. While these terms are often used interchangeably, they are not precisely the same thing; knowing how to calculate both types of yield can help you in your work as a financial analyst and investment banker. Even if you’re not working in finance, understanding how to calculate investment yield will improve your overall understanding of the world around you! Here are 10 ways to calculate investment yield and why you should care.

1. What’s an investment yield anyway?

An investment yield is the percentage return on an investment, usually calculated annually. The higher the yield, the more profitable the investment is for you. But be careful not to confuse it with interest rates: yields are typically annualized and don’t take into account compounding.

2. Net Yield Calculation

Net yield is the total return on an investment relative to the cost of the investment. It is calculated by taking the annualized income and subtracting any annual expenses.
Investors should always look at net yield because it takes into account all of the costs and fees associated with making a particular investment. If these costs are taken into account, then investors can compare investments that have similar expected returns but different fees.

3. Internal Rate of Return

The Internal Rate of Return, or IRR, is a metric that calculates the return on an investment. It is defined as the interest rate that makes the net present value of all cash flows from a project equal to zero. A positive IRR means that the investment made money, while a negative IRR means that it lost money.
The easiest way to calculate an internal rate of return is with Microsoft Excel, by using one of its functions called XIRR.

4. Cash-on-Cash Return

Cash-on-cash return is one of the most popular measures of investment yield. It’s also one of the easiest to calculate, and can be done by hand or with a simple spreadsheet. To calculate cash-on-cash return, you divide the total cash flow generated by an investment over a period of time – usually an entire year – by the initial cost of that investment. For example, if you invest $100 in stocks that generate dividends for a year worth $50, then your cash-on-cash return for that year would be 50%.

5. Annual Percentage Rate

Annual Percentage Rate, or APR, is a measure of the cost of borrowing money expressed as a yearly rate. It can be used to compare various loans and credit card offers. APR takes into account not only the interest rate, but also any fees and other costs associated with the loan. For example, if you borrow $1000 at 10% interest with a $150 finance charge, your APR would be 13%.

6. Gross Revenue Return

Gross Revenue Return is the amount of money you make from your investment. This can be calculated by dividing your total revenue by the total amount of money invested. When calculating this, it’s important to take into account any fees associated with the investment. For example, if you invest $500 and make $100 in interest, then your Gross Revenue Return would be 20%.

7. Modified Internal Rate of Return

The Modified Internal Rate of Return is a popular method for calculating investment yield. It’s a simple equation, but it can be time-consuming to calculate if you don’t have an online calculator.
To do the calculation, you need to know:
-the purchase price of the investment
-the sale price of the investment
-the amount of time that has elapsed since the purchase date

8. Average Collection Period

One important factor in deciding whether an investment is a good one is the amount of time it takes for the investment to pay off. This is called the average collection period.
Investment banks calculate this by first figuring out how much money will be collected on average for each dollar invested and then dividing that number by the total amount of money invested over that period of time.

9. Effective Gross Income Return

The Effective Gross Income Return is often used as a measure of the income generated by an investment. This can be calculated by dividing the annual net yield by the purchase price of the investment. A simple way to calculate this value is with the following equation:
Effective Gross Income Return = Annual Net Yield/Purchase Price.

10. Weighted Average Cost of Capital

The Weighted Average Cost of Capital formula, or WACC, is a method of estimating the cost of equity and debt capital. It is calculated by taking the average risk associated with each type of capital and weights them according to their relative proportions. For example, if a company has $250 million in debt and $500 million in common equity then its weighted average cost of capital would be approximately 4.5%.


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