IA Function
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HI,WHY ARE U HERE.JUST TO MAKE FUN,CHILL,OR U HAVE ANY PURPOSE OF UR LIFE.IF U HAVE THEN U SHOULD TRY TO DELEGATE UR STRENGTH , CAPABILITIES AND ANALYSIS OF UR LIFE TO REACH UR DESTINY.
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Written by Administrator | ||||||||||||
Thursday, 21 August 2008 18:36 | ||||||||||||
NPV - Net Present Value Net present value (NPV) or net present worth (NPW) is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met. How to calculate Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms Ct*(1+r)t, where t - the time of the cash flow r - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.) Ct - the net cash flow (the amount of cash, inflow minus outflow) at time t (for educational purposes, C0 is commonly placed to the left of the sum to emphasize its role as the initial investment). Decision Making
IRR - Internal Rate of Return The internal rate of return (IRR) is a capital budgeting metric used by firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude. How to calculate Given a collection of pairs (time, cash flow) involved in a project, the internal rate of return follows from the net present value as a function of the rate of return. A rate of return for which this function is zero is an internal rate of return. NPV =∑(Ct*(1+r)t = 0Decision Making A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium. | ||||||||||||
Last Updated ( Monday, 25 August 2008 14:20 ) |
Monday, 23 June 2008 13:52 |
Ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of your business. They are used to measure the relationship between 2 or more components of the financial statements and have greater meaning when the results are compared to industry standards for businesses of similar size and activity Profitability ratios: how much profit is being generated · Earnings per share · Net profit margin · Return on shareholders' equity · Return on total assets· Coverage ratio Earnings per share Calculation: ( net income - preferred dividends ) / number of common shares Measures the after-tax earnings generated for each share of common stock. Earnings Per Share does not apply to preferred shareholders as they receive dividends before any dividends are made to common shareholders. Preferred dividends are subtracted from net income to calculate the amount available to common shareholders. Example: Earnings per share : $ 4.64 Indicates the number of dollars of income have been earned for each share of common stock. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity Net profit margin Calculation: net profit after taxes / net sales Also called the Return on Sales Ratio, it shows the after-tax profit (net income) generated by each sales dollar by measuring the percentage of sales revenue retained by the company after operating expenses, creditor interest expenses, and income taxes have been paid. Example: Net profit margin : $ 20.70 Indicates the number of profit dollars generated for each $100 in sales. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity Return on shareholders' equity Calculation: ( net income for the year - taxes - interest ) / shareholders' equity Measures the rate of return the shareholders receive on their investment in your business. Net Income for the Year is after taxes and interest because the shareholders are only entitled to the balance. Example: Return on shareholders' equity : $ 0.45 Indicates the dollar amount of after-tax and after-interest profit generated for each $1 of equity. This result can positive or negative, depending on the industry standard for companies of similar size and activity. Return on total assets Calculation: income from operations / average total assets Measures the efficiency of assets used to generate income by the amount of profit generated for every $100 invested in assets. Income from Operations excludes any expenses such as income taxes and financing charges. Average Total Assets are used due to the variation in the amount of assets used by the business. Average Total Assets = Average Current Assets + Average Fixed Assets. Example: Return on total assets : 37.16 A higher ratio result than industry standards usually indicates an efficient use of assets. There are several factors to consider before drawing conclusions from this ratio such as seasonal variability in sales and whether assets are bought or leased Coverage ratio Calculation: profit before interest and taxes / annual interest and bank charges Also known as the Number of Times Interest Earned Ratio, it measures the business' capacity to generate enough income to pay the interest on its loans. Example: Coverage ratio : 12.84 This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. Long-term investors seek assurance that the business in which they are investing can sufficiently cover its interest requirements by a comfortable margin. Therefore, a larger value for the Coverage Ratio is preferred as it indicates a limited risk to term lenders. A lower value may indicate that the debt load is too high for profitability and that the business may not be able to meet all of its obligations. |
Last Updated ( Tuesday, 29 July 2008 06:19 ) |
Written by Administrator |
Monday, 23 June 2008 13:52 |
Ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of your business. They are used to measure the relationship between 2 or more components of the financial statements and have greater meaning when the results are compared to industry standards for businesses of similar size and activity. Operations ratios: measure the effectiveness of internal operations Accounts receivable turnover · Accounts receivable turnover · Asset utilization · Average collection period · Average days payable · Days of sale in inventory · Fixed asset utilization · Inventory turnover · Sales per employee Calculation: net credit sales / average accounts receivable Measures how liquid accounts receivable is for the year. Average Accounts Receivable is the average of the opening and closing balances for Accounts Receivable. Example: Accounts receivable turnover : 21.53 Indicates the number of times receivables were turned over during the year. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. A higher turnover rate generally indicates less investment in accounts receivable because customers are paying more quickly Asset utilizationCalculation: net sales / total assets Measures the number of sales dollars earned for each dollar invested in assets. Example: Asset utilization : 0.92 Indicates the dollar amount of sales generated by each $1 of assets. This result can be considered positive or negative, depending on the industry standard for companies of similar size and activity. A low ratio compared to other businesses in the same industry can indicate an over-investment in or inefficient use of assets compared to the competition. The amount of fixed assets should also be considered, particularly if the fixed assets are older and have been recorded at historic costs. A higher ratio value than the industry standard can indicate an efficient use of resources favourable to making profits, or an over-use of production capacity. Over-use of production capacity has the benefit of short-term profits, but can result in the accelerated wear and tear of production equipment, decreasing future profitability when equipment needs to be replaced Average collection period Calculation: (days in the period * average accounts receivable) / net credit sales Measures the average number of days customers take to pay their bills, indicating the effectiveness of credit and collection policies of the business. This ratio also determines if the credit terms are realistic. The Days in the Period is the number of days in the measurement period, normally 365. Average Accounts Receivable is the average of the opening and closing balances of Accounts Receivable for the measurement period. Example: Average collection period : 0.33 day(s) This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. A high value can indicate a collection problem. A low value usually indicates good management of collections but it could also signal an overly tight credit policy limiting sales and profits. Average days payable Calculation: ( days in the period * average accounts payable ) / purchases on credit Measures the average number of days it takes to pay suppliers. The Days in the Period is the number of days in the measurement period, normally 365. Average Accounts Payable is the average of the opening and closing balances of Accounts Payable for the measurement period. Example: Average days payable : 3.62 If the accounts payable period is longer than the collection period, defined by the company's creditors, this may be an indication of ineffective payment procedures or a poor cash position. It may also place creditor relations and the credit rating of the business in jeopardy. If shorter, the firm is not maximizing the benefits of buying on credit, although it will be meeting suppliers' payment terms Days of sales in inventory Calculation: days in the period * average inventory / cost of goods sold Also called Days of Inventory Sales, this ratio indicates the possible number of days of sales with the inventory on hand. It is used to determine whether there is too great an investment in inventory. The Days in the Period is the number of days in the measurement period, normally 365. Average Inventory is the average of the opening and closing balances of inventory for the measurement period. Example: Days of sales in inventory : 0.25 day(s) Tells you the approximate number of days that can be handled with existing inventory. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. It is important to note that this ratio varies depending on the type of business. For perishable goods, the value should be low; for durable goods, it can be higher Fixed asset utilization Calculation: net sales / average net fixed assets Also called the Sales to Fixed Assets Ratio, it measures the number of sales dollars earned for each dollar of investment in fixed assets. This ratio is normally used in concert with the Asset Utilization Ratio. Average Net Fixed Assets = average of the opening and closing balances of fixed assets. Example: Fixed asset utilization : 1.67 Indicates the number of dollars of net sales are generated by each $100 of fixed assets. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. A low ratio compared to other companies in the same industry can indicate an over-investment in or inefficient use of fixed assets. A higher ratio than the industry standard can indicate the following: an efficient use of resources, favourable to making profits; an over-use of production capacity; or the reliance on older fixed assets that need to be replaced. Over-use of production capacity has the benefit of short-term profits but can also result in the accelerated wear and tear of production equipment, decreasing future profitability when equipment needs to be replaced Inventory turnover Calculation: cost of goods sold / average inventory Measures the number of times inventory has been turned over (sold and replaced) during the year. It is a good indicator of inventory quality (whether the inventory is obsolete or not), efficient buying practices, and inventory management. This ratio is important because gross profit is earned each time inventory is turned over. Example: Inventory turnover : 16.21 This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. A high turnover rate is an indication of good inventory management as the appropriate amount of inventory is being purchased to meet demand. High turnovers are also a good indicator that the business is less likely to suffer problems carrying inventories of products that may become obsolete (such as fashion items), are seasonal (such as snow shovels), or that deteriorate (such as groceries). It is important to note that this ratio varies according to the type of business. For perishable goods, the turnover rate should be high; for durable goods, it can be lower. A major variance from industry standards may indicate an inventory surplus resulting from a poor purchasing or marketing policy. Sales per employee Calculation: sales for the year / average number of employees Measures the level of sales generated per employee. Average Number of Employees is used as the number of employees can change during the year according to business needs. Sales per employee : 36,497.85 Indicates the approximate dollar value of sales generated per employee for the year. This result can be considered positive or negative, depending on the industry standard for companies of similar size and activity, and the costs attributed to making the sales |
Last Updated ( Tuesday, 29 July 2008 06:19 ) |
Written by Administrator |
Monday, 30 June 2008 00:00 |
Ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of your business. They are used to measure the relationship between 2 or more components of the financial statements and have greater meaning when the results are compared to industry standards for businesses of similar size and activity. Liquidity ratios: determine the capacity of the business to meet current obligations · Current ratio · Inventory to net working capital · Quick ratio Current ratio Calculation: current assets / current liabilities Also called the Working Capital Ratio, it measures the extent to which current assets are available to meet current liabilities (due within the next 12 months). The Current Ratio indicates whether the business has ample working capital i.e. the excess of current liabilities over current assets used to meet short-term obligations, quickly take advantage of opportunities, and qualify for favourable credit terms. Example: Current ratio : 3.50 A Current Ratio of 1.0 or greater is considered acceptable for most businesses. Most analysts agree that other factors need to be considered before drawing conclusions from the Current Ratio such as how quickly current assets can be converted into cash, and the credit terms extended by suppliers and to customers. A high ratio (greater than 2.0) indicates excessive current assets in the form of inventory, and underemployed capital. A low ratio (less than 1.0) indicates difficulty to meet short-term financial obligations, and the inability to take advantage of opportunities requiring quick cash Inventory to net working capital Calculation: inventory / (current assets - current liabilities) Indicates if too high a proportion of current working capital is in inventory. Because inventory is a less liquid resource than cash, too high a level of inventory can indicate the inability to turn working capital into cash to meet short-term obligations. Example: Inventory to net working capital : 2.69 % Indicates what percentage of Net Working Capital is in inventory. This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. A negative value is a sign that the company may have difficulties meeting short term financial obligations Quick ratio Calculation: quick assets / current liabilities Also called the Acid Test Ratio or the Cash Ratio, it indicates the company's ability to pay off the immediate demands of creditors using its most liquid and current assets; these can be converted quickly into cash, temporary investments, and marketable securities. It gives a more realistic picture of a business's ability to repay current obligations than the Current Ratio as it excludes inventories and prepaid items for which cash cannot be obtained immediately. This ratio is usually used as a supplement to the Current Ratio. Example: Quick ratio : 1.83 Indicates the number dollars of quick assets available to pay each dollar of current liabilities. Generally, a Quick Ratio of 1.0 or greater is considered adequate to ensure a company's ability to pay its current obligations. A value of less than 1.0 signals a problem in meeting short-term obligations |
Last Updated ( Tuesday, 29 July 2008 06:13 ) |
Written by Administrator |
Monday, 23 June 2008 13:45 |
Ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of your business. They are used to measure the relationship between 2 or more components of the financial statements and have greater meaning when the results are compared to industrial standard for businesses of similar size and activity. Leverage ratios: examine how assets of the business are financed · Debt-to-asset ratio · Debt-to-equity ratio Debt-to-asset ratio Calculation: liabilities / assets Also known as Debt Asset Ratio, it measures the extent to which the acquisition of assets has been financed by creditors. Example: Debt-to-asset ratio : 140.02 % This result may be considered positive or negative, depending on the industry standard for companies of similar size and activity. For creditors, a lower Debt-to-Asset Ratio is preferred as it means shareholders have contributed a large portion of the funds to the business, and thus creditors are more likely to be paidDebt-to-equity ratio Calculation: total liabilities / shareholders' equity Measures management's reliance on creditor financing as well as the business's indebtedness compared to the amount invested by its owners. This ratio indicates the amount of liabilities the business has for every dollar of shareholders' equity. Because this ratio is a good indicator of a business's capacity to repay its creditors, it is considered very important by most term lenders Example: Debt-to-equity ratio : 3.50 The Debt-to-Equity proportions are decided by management and thus there is no "ideal" ratio value. The reliance on creditor financing needs to be analyzed in light of other factors such as: the historical trend of this ratio for the business, industry standards for companies of similar size and activity, and whether the company is in the start-up or established phase. Term lenders prefer a lower debt-to-equity ratio as it indicates a lower reliance on creditors and therefore a greater capacity for the business to repay its creditors |