Which financial metric is most often associated with evaluating expected returns on investments?

The expected rate of return is a crucial financial metric used to evaluate investment performance, as it effectively quantifies the average outcome of an investment based on its potential gains and losses. This rate incorporates probabilities of various outcomes, allowing investors to make informed decisions by evaluating the likelihood of different returns. It reflects the average return that an investor anticipates based on historical performance or a combination of expected future cash flows and the risks associated with those cash flows.

While net present value is a widely used metric to assess the profitability of an investment by considering the present value of cash inflows and outflows, it does not specifically indicate expected returns directly. Similarly, the internal rate of return provides a single rate that equates the cash inflows and outflows of an investment, but it is more about determining the discount rate that would result in a net present value of zero rather than stating expected returns directly. Cash flow analysis focuses on the actual cash generated and spent, which is essential for understanding liquidity and financial viability, but it lacks the probabilistic framework that the expected rate of return provides.

Hence, the expected rate of return is the most relevant metric for evaluating the anticipated performance of an investment regarding its returns.