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Purpose and benefits

This may well be as basic and important a computation as there is in finance. Rate of return is a simple and straightforward way to determine how much investors are being paid for the use of their money, so that they can then compare various investments and select the best—based, of course, on individual goals and acceptable levels of risk.

Rate of return has a second and equally vital purpose: as a common denominator that measures a company's financial performance, for example in terms of rate of return on assets, equity, or sales.