Total return

The total return (TR) is a return figure that can be used to calculate returns for capital investments as individual investments as well as returns for entire portfolios .

Demarcation

In addition to the total return, there are other important return metrics. To be mentioned here are:

• IRR = internal rate of return
• Market value return
• Book value return
• Net interest (according to GdV )

The total return is not to be confused with the absolute return .

formula

The formula for the total return is as follows:

${\displaystyle TR=NCF+W{\ddot {A}}R}$

Components

The total return (TR) is made up of the net cash flow return and the return on value change (WÄR).

Net Cash Flow Return (NCF)

${\displaystyle NCF={\frac {(Einzahlungen-Auszahlungen)^{1}}{(Marktwert_{t_{0}})^{2}}}}$

¹ As an alternative, the expenses and income are often used here.
² Capital employed (tied up) = market value at the beginning of the period

Return on change in value (WÄR)

${\displaystyle W{\ddot {A}}R={\frac {(Marktwert_{t_{1}}-Marktwert_{t_{0}})}{Marktwert_{t_{0}}}}}$

t ₀ = previous period (beginning of period)
t ₁ = observation period (end of period)

Areas of application

Investment in general

The total return is often used to calculate a return on investments.

property

The total return is the most frequently used key figure for calculating returns in the real estate sector . Its great advantage over the IRR is that the return from current business (cash flow surplus) and the change in market value can be displayed and calculated separately.

This enables a more precise analysis and control of the individual property.

Summary

The total return is usually calculated on an annual basis, but it can also be calculated for other periods, such as B. for 3.5 or 10 years. It should be noted, however, that the return must always be converted to the annual basis in order to establish comparability.

literature

• Tobias Schultheiß: 100 real estate figures . In: Cometis publishing GmbH & Co. KG, April 2010, 2nd edition, page 146 ff.

Web links

• Return on change in value: Gesellschaft für Immobilienwirtschaftliche Forschung e. V.
• (Net) cash flow yield: Gesellschaft für Immobilienwirtschaftliche Forschung e. V.