Rate-Of-Return Analytics

An understanding of rates of return and pricing may help savers, investors and businesses better manage their finances and avoid losses. Policymakers may also benefit from rate-of-return-based analytical tools to prevent policy actions from leading to financial crises, worsening poverty and inequality. Drawing from five centuries of economic and financial thought, this book explores a framework in hopes of applying the concept of rates of return to current issues. Asset mispricing can result in unsustainable bubble-crash cycles, financial losses and economic dislocation. In Part II, rates of return on cost (RRC) and returns-to-valuation gaps are computed for publicly-traded non-financial firms in five sectors worldwide with total market capitalization of an estimated U.S. $700 billion as of 2015. The analysis may also apply to individuals: Declining purchasing power may result when consumer prices rise faster than the rate of return on the cost of living. A more general theory of returns-to-pricing may suggest that growth in rates of returns of financial entities should roughly align with pricing growth--in both asset and goods markets. The appendices include additional observations, historical extensions and commentary on analytical approaches for economic management in the 21st century.