Return On Risk Adjusted Capital (RORAC)

Written by Evispot. Posted in Glossary, r.

The return on risk-adjusted capital (RORAC) is a rate of return measure commonly used in financial analysis, where various projects, endeavors, and investments are evaluated based on capital at risk. Projects with different risk profiles are easier to compare with each other once their individual RORAC values have been calculated. The RORAC is similar to return on equity (ROE), except the denominator is adjusted to account for the risk of a project.

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Return on Risk Adjusted Capital= Net Income /  Risk-Weighted Assets

Where Risk-Weighted Assets is Loan Amount * Probability of Default, also known as value at risk.

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