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K-Ratio

What is 'K-Ratio'

A ratio that is used in the performance evaluation of an equity relative to its risk. The ratio examines the consistency of an equity's return over time. The data for the ratio is derived from a value added monthly index (VAMI), which tracks the progress of a $1,000 initial investment in the security being analyzed.

Calculated as:

Explaining 'K-Ratio'

The K-ratio was developed by Lars Kestner, a derivatives trader and statistician. The K-ratio calculation involves running a linear regression on the log-VAMI curve. The results of the regression are used subsequently in the K-ratio formula. The slope is the return, while the standard error of the slope represents the risk. The ratio takes the return of the security over time, and it is considered a good tool to measure the performance of an equity.


Further Reading


Economic and financial analysis of harvesting and utilization of river reed in the Okavango Delta, Botswana
www.sciencedirect.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Asset price shocks, financial constraints, and investment: Evidence from JapanAsset price shocks, financial constraints, and investment: Evidence from Japan
www.jstor.org [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Indicators of financial developmentIndicators of financial development
www.sciencedirect.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Industry conditions, growth opportunities and market reactions to convertible debt financing decisionsIndustry conditions, growth opportunities and market reactions to convertible debt financing decisions
www.sciencedirect.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Coping with business risk through probabilistic financial statementsCoping with business risk through probabilistic financial statements
journals.sagepub.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Profit sharing and the financial performance of companies: evidence from UK panel dataProfit sharing and the financial performance of companies: evidence from UK panel data
academic.oup.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Testing Q theory with financing frictionsTesting Q theory with financing frictions
www.sciencedirect.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …

Financial liberalization, openness and convergenceFinancial liberalization, openness and convergence
www.tandfonline.com [PDF]
… The N/K ratio also indicated that a higher return per unit investment … Scholar. Prato, 1998 T. Prato. Natural Resource and Environmental Economics, Iowa State … S. Sathirathai, ED BarbierValuing mangrove conservation in southern Thailand. Contemporary Economic Policy (19 …



Q&A About K-Ratio


Where did Lars Kestner develop this formula from?

He developed it from a value added monthly index (VAMI), which tracks progress of a 1 initial investment in the security being analyzed.

What is the K-Ratio?

The K-Ratio is a ratio that examines the consistency of an equity's return over time.

What are some other uses for this ratio?

Some other uses include measuring performance of an equity and comparing two different securities.

What does the K-Ratio measure?

The K-Ratio measures performance of an equity relative to its risk.

Can you compare two different securities using this ratio?

Yes, you can compare two different securities using this ratio by calculating both ratios and then finding out which one has higher returns with lower risks.

Why is this ratio useful in measuring performance of an equity?

It is useful because it allows investors to compare different securities' performances over time without taking into account their risk levels.

Is there any other way to calculate returns on investments besides using VAMIs and regression analysis ?

Yes, there are many ways including using price/earnings ratios, price/book ratios, etc...

When would you use this ratio to measure performance of an equity?

You would use it when analyzing historical data on stocks or mutual funds that have been around for years.

How do you calculate the K-Ratio?

Calculated as,

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