Found 1748 Articles for Growth & Empowerment

What is Terminal Value?Terminal value or horizon value is an important metric for forecasting future cash flow. Generally, the terminal value represents the present value of a future cash flow taking the growth as a common rate of perpetuity.There are many uses of terminal value but the most prominent use of terminal value is found in calculating the discounted cash flow (DCF). So, the terminal value is of vital importance for anyone who needs to do a DCF calculation.Significance of Terminal ValueAs is obvious, calculating a future value of anything with 100% accuracy is a challenging task. This is more ... Read More

Capital budgeting is one of the most important processes businesses need to rely on for growth and profitability. Therefore, careful insight and examination must be applied to the process of capital budgeting in order to get the most out of the process.Capital budgeting can be broadly categorized into the following five steps.Identification of Investment OpportunitiesThe first step of a capital budgeting process is the identification of an investment option. The business considering capital budgeting must find the reason for investment in this step.The identification may result in a number of ways, such as new product launches or expansion of the ... Read More

Interest rates are a very important part of the investment process, and investors usually invest their money depending on the interest rates. It is impossible to think about investment without considering interest rates. There are mainly two types of interest rates which the investors are concerned with. These are −Nominal Interest RateReal Interest RateLet’s consider the definitions of each one of the interest rates and then find out the differences between the two.Nominal Interest RateThe nominal interest rate is the rate an investor has to pay in the market without considering the rate of inflation. For example, the rates of ... Read More

The payback method, certainty equivalent method, and scenario analysis help investors to find one simple solution for investment analysis. However, for businesses, it is important that they keep making decisions one after another depending on the market conditions. That is, it is wrong to believe that only one analysis is enough and the end of the decision-making process. In fact, one decision leads to a sequence of other decisions and the process goes on in a manner in which decisions have to be taken one after another. Such a continuous decision-making process is known as sequential investment decisions.Why sequential investment ... Read More

Real OptionsReal options are not an obligation but a right to make business decisions. The idea of a real option is critical to the success of a business because the ability to select the right business opportunity has a significant impact on the profitability and growth of a company.A real option permits the management team to evaluate and analyze business opportunities and select the right one that will provide the maximum profitability and growth.As the concept of real options is related to the concept of financial options; the idea of fundamental knowledge of financial options is important in order to ... Read More

Replacement of old assets is one of the most common and critical decisions that have to be made by an organization dealing with goods or services. Many organizations do not know the correct method of replacing an existing asset and face huge losses later when the asset stops working altogether.There are some considerations that need to be addressed while taking a replacement decision. Here are some of the most needed ones.Do not let the machine decideMany organizations follow a very simple policy for the replacement of existing assets.Instead of trying to decide for the time of replacement, they let the ... Read More

Inflation is an important parameter in investments, as it erodes the value of money. It must be included in capital budgeting so that cash flows are appropriately included in the evaluation of an investment. In doing so, the inflation targets must be forecasted accurately over a considerably longer duration.Here are some considerations that must be made while creating inflation in an investment evaluation process.The forecasts must be spread over a periodInflation is an ever-existing truth nowadays. Investors face this reality day-in and day-out. They want to gain a return that is more than the inflation rates so that the value ... Read More

Although depreciation does not affect the cash flows in a direct manner, it has an indirect influence on the latter. Depreciation is a non-cash item and so financial managers must know how depreciation affects the cash flows in order to present an accurate figure of cash flows.What is Depreciation?Depreciation is a concept in accounting wherein the loss of value of an asset is considered. Whether it is machinery, computing equipment or office stationery, all tangible assets lose value over time. In that manner, all tangible assets have a value of zero after its useful life. This reduction of value of ... Read More

Financial decision-making is one of the most integral parts of the overall business management of a company. The decisions made by a financial department of a company have to be under the framework of overall corporate objectives and policies. A finance department cannot take decisions that are not in sync with the corporate policies of a business concern.The decisions in financial management have been categorized into three parts −Investment decisionsFinancial DecisionsDividend decisionsThe investment decisions are related to assets in which the company will invest its funds. The assets that can be acquired within investment decisions are broadly divided into two ... Read More

Capital gearing and income gearing differ in the sense of their application, as the calculation of the two are different from each other. The measures of financial leverage, namely debt ratio and debt-equity ratio are related to capital gearing; whereas the interest coverage ratio is a measure of income gearing.Capital GearingCapital gearing measures are static in nature. Therefore, they are incapable of stating the financial risks an investor or a company may face in the long term.It also does not represent the true condition of a company’s financials and hence misses to report the repayments or payments of interests.Income GearingThere ... Read More