Dispersion

See Also:
Company Life Cycle
Annual Percentage Rate (APR)
Adjusted Present Value (APV) Method of Valuation
Allowance for Uncollectible Accounts
Net Operating Loss Carryback and Carryforward

Dispersion Definition

In finance, dispersion describes a range of possible returns for an investment. It is a way to measure the riskiness of an investment. If the dispersion is wide, then there are many possible values for the return on that investment – so it is a risky investment. If the dispersion is narrow, then there are fewer possible values for the return on the investment – so it is a safer investment.
This term essentially measures the anticipated volatility of an investment. Measuring this type of risk will require estimates or figures for expected return on the investment, probabilities for the expected returns, and standard deviations. It is just one way to measure the riskiness of an investment.

Example

For example, imagine a stock with an expected return of 15% and a range of possible returns spanning from 10% to 20%. The range of possible outcomes is not very widely dispersed. For this simple example, it is certain that the outcome will fall between 10% and 20%. This investment would have a narrow dispersion and would be considered a fairly safe investment.
On the other hand, consider a stock with an expected return of 25% and a range of possible returns spanning from 0% to 50%. The range of possible outcomes is widely dispersed. Furthermore, it is certain that the outcome will fall between 0% and 50%; however, that’s a wide range. As a result, this investment would have a wide dispersion and would be considered a risky investment.
dispersion
 

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

IN CRISIS? GET A STRATEGIC CFO! – CEO Blindspots Podcast

Friend of the firm, Birgit Kamps, recently had Strategic CFO President, Dan Corredor, as a guest on her podcast, CEO Blindspots. CEO BLINDSPOTS HOST: Birgit Kamps. She was speaking five languages by the age of 10, and lived in five countries with her Dutch parents prior to becoming an American citizen. Birgit’s professional experience includes starting

Read More »

SHRM calls ICHRA the 401K for Group Health Benefits

Fed-up with group health insurance? ICHRA is the new way to offer great health benefits and avoid ACA penalties, SHRM calls it the 401K for group health benefits.  In 2020 the Department of Labor, HHS and IRS changed the rules for employer health benefits. They changed the Affordable Care Act mandates and penalties for every

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ SERIES

Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®

Days
Hours
Min
Sec

September 12-15th 2022