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Risk Adjusted Return on Capital Formula

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Risk Adjusted Return on Capital (RAROC) is a modified return on investment (ROI) figure that takes elements of risk into account. Check FAQs

RAROC = \frac{R - e - el + ifc}{P Capital}

RAROC - Risk Adjusted Return on Capital?R - Revenue?e - Expenses?el - Expected Loss?ifc - Income From Capital?P_Capital - Capital Cost?

Risk Adjusted Return on Capital Example

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Here is how the Risk Adjusted Return on Capital equation looks like with Values.

Here is how the Risk Adjusted Return on Capital equation looks like with Units.

Here is how the Risk Adjusted Return on Capital equation looks like.

374.15 = \frac{780000 - 47000 - 6700 + 22000}{2000}

374.15 = \frac{780000 - 47000 - 6700 + 22000}{2000}

374.15 = \frac{780000 - 47000 - 6700 + 22000}{2000}

Tip: Use pencil () icon above to edit Input Values and Units.

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Risk Adjusted Return on Capital Solution

Follow our step by step solution on how to calculate Risk Adjusted Return on Capital?

FIRST Step Consider the formula

RAROC = \frac{R - e - el + ifc}{P Capital}

Next Step Substitute values of Variables

∴

RAROC = \frac{780000 - 47000 - 6700 + 22000}{2000}

Next Step Prepare to Evaluate

∴

RAROC = \frac{780000 - 47000 - 6700 + 22000}{2000}

LAST Step Evaluate

∴

RAROC = 374.15

Risk Adjusted Return on Capital Formula Elements

Variables

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.

Symbol: RAROC

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Revenue

Revenue is the income that a business has from its normal business activities, generally from the sale of goods and services to customers.

Symbol: R

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

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.

Symbol: e

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

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.

Symbol: el

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Income From Capital

Income From Capital refers to the income which equals capita charges multiplied with risk free rate.

Symbol: ifc

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

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.

Symbol: P_Capital

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Credits

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Created by Kashish Arora

Satyawati College (DU), New Delhi

Kashish Arora has created this Formula and 50+ more formulas!

Verifier Image

Verified by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

Vishnu K has verified this Formula and 200+ more formulas!

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How to Evaluate Risk Adjusted Return on Capital?

Risk Adjusted Return on Capital evaluator uses Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost to evaluate 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 evaluate Risk Adjusted Return on Capital using this online evaluator? To use this online evaluator for Risk Adjusted Return on Capital, enter Revenue (R), Expenses (e), Expected Loss (el), Income From Capital (ifc) & Capital Cost (P_Capital) and hit the calculate button.

FAQs on Risk Adjusted Return on Capital

What is the formula to find Risk Adjusted Return on Capital?

The formula of Risk Adjusted Return on Capital is expressed as Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost. Here is an example- 374.3372 = (780000-47000-6700+22000)/2000.

How to calculate Risk Adjusted Return on Capital?

With Revenue (R), Expenses (e), Expected Loss (el), Income From Capital (ifc) & Capital Cost (P_Capital) we can find Risk Adjusted Return on Capital using the formula - Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost.

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