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AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
AQRON Private Limited
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AQRON Private Limited

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Analysis of key financial indicators. …

Analysis of key financial indicators.
www.aqron.com

Published in: Economy & Finance
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  • 1. AQRON PRIVATE LIMITED
    Analysis of Key Financial Indicators
  • 2. AGENDA
    Understand the basic frame work of financial analysis
    Discuss Aqron cash budget in detail
    Discuss Aqron cash budget with reinvestment
    External financing requirement ?
    Discuss optimal structure in detail
    Discuss First Chicago approach for Venture valuation
  • 3. AGENDA (Contd)
    Calculate NPV for various initiatives
    Sensitivity analysis and interpretation
    Scenario Analysis and interpretation
    Discussion on Limitations
    Exercise Section ; IS , BS and ratios
  • 4. FINANCIAL ANALYSIS
    Goal of financial analysis
    Forecast  Decision (P)
    Visibility  Management (O)
    Risk  Diversification (L)
    Prudence  Profitability (C)
    Goal of a firm
    Share Holders Wealth
    Going Concern
  • 5. AQRON PRIVATE LIMITEDProject Details
  • 6. FINACIAL VISIBILITY
    Projected Cash Budget without reinvestment
    Projected Cash Budget with reinvestment
    Projected Financial Statements
    Cash Budgeting under three different scenarios
  • 7. OPTIMAL CAPITAL STRUCTURE
    Calculation of unlevered Beta
    Inclusion of Leverage
    Optimal Debt to Equity Ratio (Weighted Average Approach)
    Valuation under Venture Capital (First Chicago Approach)
    Maximum Angel Investment
  • 8. RISK ANALYSIS
    Sensitivity Analysis
    Scenario Analysis
  • 9. FINANCIAL VISIBILITY
  • 10. CASH BUDGETING
    Importance
    Timing of Acquisitions
    Quality of Acquisitions
    Sales Forecast
    Demand forecast
    Regression Techniques
    Historical data
    Intuitive Approach
  • 11. CASH BUDGETING (contd)
    Determination of Cost
    Inflation adjusted
    Exchange rate adjusted
    Demand forecast
    Unpredictability
    Risk determination
    SML approach to weigh decisions
  • 12. CASH BUDGETING (contd)
    Decision Criterion
    Payback period
    Discounted payback period
    Net Present Value of different alternatives
    IRR and MIRR ?
    AQRON Cash Budget without reinvestment
    __
  • 13.
  • 14. CASH BUDGETING (contd)
    Reinvestment of Reserves
    Can demand be created?
    Assumption of a linear demand curve
    __
    Maximizing output from resources (Best practice)
    Revenue function = (Demand Curve) * Number of hours of solution
    Profit function = Revenue function – Cost function
    Maximize
    1st order derivative
    Maxima to the second order
    Gives you quantity that maximizes each product and service
  • 15.
  • 16. EXPANSION SCENARIOS
    Advertisement
    Training
    Research and Development
    __
  • 17. NPV Comparison of Three Expansion Scenarios
  • 18. OPTIMAL CAPITAL STRUCTURE
  • 19. OPTIMAL CAPITAL STRUCTURE
    Inclusion of Debt
    Raises risk for the equity holder
    Increases ROE for the stockholder
    High risk Lower stock price
    High ROR Higher stock price
    Optimal capital Structure
    Maximizes Stock Price
    Minimizes Weighted Average Cost of Capital (WACC)
  • 20. OPTIMAL CAPITAL STRUCTURE (contd)
    Business Risk
    ROIC (zero debt ) = ROE
    Business risk (unlevered firm) = σ ROE
    Dependent
    Financial Risk
    Risk over and above business risk in a levered firm
    Spreads out the probability distribution
  • 21.
  • 22.
  • 23. OPTIMAL CAPITAL STRUCTURE (contd)
    Weighted Average Cost of Capital
    WACC = Wd*Kd *(1-T) + Ws*Ks + Wp*Kp
    WACC = D/A*Kd*(1-T) + E/A*Ks
    Cost of Debt Kd
    KIBOR + Premium
    Cost of Equity Ks
    CAPM: Ks = Rf + β (Rm- Rf)
  • 24. OPTIMAL CAPITAL STRUCTURE (contd)
    Calculation of Market Risk Premium
    Geometric mean of KSE 100 Index from 2000-2009
    Hamada Equation for Beta calculation
    β = βu [1 + (1-T)(D/E)]
    βu = β / [1+ (1 – T) (D/E)]
    Approach
    __
  • 25. Capital
  • 26. FIRST CHICAGO APPROACH
    Very optimistic
    Optimistic
    Conservative
    Pessimistic
    __
  • 27. MAXIMUM ANGEL INVESTMENT
    49-51% Ownership right
    Feasible amount calculation
    __
  • 28. RISK ANALYSIS
  • 29. SENSITIVITY ANALYSIS
    “Change in NPV response to change in a variable all else constant”
    What If Questions against a base case
    Selling Price
    Growth Rate
    Variable Cost
    Fixed Cost
    WACC
    __
  • 30.
  • 31. SCENARIO ANALYSIS
    “Bad and good set of financial outcomes are compared with the most likely using probability distributions”
    Best case scenario
    Base case scenario
    Worse case scenario
    Allows changes in more than one variable at a time
    __
  • 32.
  • 33. MONTE CARLO SIMULATION
    Each variables is assigned a value
    NPV is generated
    The process is repeated 1000 times
    1000 NPVs are generated
    Mean of these 1000 values is the Expected profitability
    Std. Deviation is the risk
  • 34. EXERCISE SESSION

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