Investment Management Approaches! Investments need to be managed accordingly in order to make things clear as well as professionally sound. The better is the management of your investment the best are the result from the investments. There are two different kinds of approaches to investment management discussed below:
Portfolio Risk and Reward Investment is always associated with two most important things namely, risks and returns and measuring both of these is always a crucial part of every investment. When it comes to the measurement of the risks and returns you may come across a number of measurement techniques of which Standard Deviation takes… Read More »
NPV vs IRR Every business comes across a number of decisions to be made on a daily basis regarding making investments in different projects. However, making these investments requires a huge analysis and consideration of a number of things.
Components of Cost of Capital Cost of Capital Definition The cost of capital is the minimum return rate required by the business to be earned in order to meet the expectations of its investors. Businesses to progress well and move with the industry need to undertake new investments, new opportunities, and new projects. However, these… Read More »
What is Time Value of Money? Time Value of Money – A Crucial Concept Time value of money is the name which we all hear every now and then in almost all the fields. No matter you talk about investing your money somewhere, saving your money at home, initiating new projects or buying and selling… Read More »
IRR Decision Rule IRR is one among a number of capital budgeting techniques which is most commonly used by the investors for evaluating their investment decisions. What is IRR? IRR is the discount rate on which NPV of a project becomes Zero OR we can define IRR as the discount rate at which Present Value… Read More »
Credit Risk and Credit Rating Credit Risk In today’s challenging business environment, it is very crucial for financial institutions to do risk assessment. Therefore, it is very important to know exactly what Credit Risk is and why it is important to ascertain it.
Capital Structure What Is Capital Structure? When you are asking about what the capital structure is and what it relates to what you will find is that it is regarding the debt and equity within a business environment. It is the amount of debt and equity that mixes together to give the amount of return… Read More »
Why people invest in stocks? Investors buy, hold and sell financial assets to earn returns on them. Within the spectrum of financial assets, why do some people buy common stocks instead of safely depositing their money in an insured saving account with a guaranteed minimum return? Describe the factors/characteristics that investors keep in consideration while preferring… Read More »
Discounted Cash Flows – Capital Budgeting Techniques We have discussed earlier that accounting rate of return & payback period ignores time value of money and cash flow trends. Means cash inflow of $5000 in the first year and $50 in the fifth year is just as good as $50 in the first year and $5000… Read More »
Accounting Rate of Return – Capital Budgeting Techniques Accounting rate of return is the project evaluation technique which differs from other capital budgeting techniques because the focus of this technique is average annual net income or accounting income rather than cash flows. ARR is defined as the ratio of average accounting income to average investment. You will find… Read More »
Annuity Due and Ordinary Annuity – Capital Budgeting Techniques We often encounter situations where we have multiple cash flows of same amount. A very common example of such cash flows is loan repayment plan where borrower is asked to repay the loan by making equal installments over some period of time. Almost all home mortgages, car… Read More »
Independent and Mutually Exclusive Projects Understanding of classification of capital budgeting projects plays a crucial role while analyzing viability of projects. What is mutually Independent Projects? A Project whose cash flows have no impact on the acceptance or rejection of other projects is termed as Independent Project (not mutually exclusive). Thus, all such Projects which meet… Read More »
Capital Structure and Cash Flows On one hand, operations of the company may help in forecasting of future cash flows but in addition to this, future cash inflows and outflows can also be accessed through company capital structure. A corporation may use different combinations of equity, debt, or mixture of securities to finance its assets… Read More »
Profitability Index Profitability index (PI) is the ratio of investment to pay off a suggested project. It is a useful capital budgeting technique for grading projects because it measures the value created per unit of investment made by the investor. This technique is also known as Profit Investment Ratio (PIR), Benefit-Cost Ratio and Value Investment… Read More »