1
2013 – May
By: Ahmed Taha
 Types of Revenue
 Estimating Feature / Product Revenue
 What is the value of Money ?
 Financial Measures
2
 New Revenue
› New client
 Incremental Revenue
› Extra Fees From Current Clients
 Retained Revenue
› Cut Losses
 Opera...
4
Quarte
r
Developm
ent Cost
New
Revenue
Increme
ntal
Revenue
Retained
Revenue
Operatio
nal
Efficienc
y
Net Cash
Flow
1 -8...
* Required 5
Quarter New
Customers
Revenue Per
Customer
(Average)
New Revenue
1
2 50 75 3750
3 50 75 3750
4 50 75 3750
5 1...
* Required 6
Quarter Current
Customers
Revenue Per
Customer
(Average)
Incremental
Revenue
1
2 100 25 2500
3 200 25 5000
4 ...
* Required 7
Quarter Retained
Customers
Revenue Per
Customer
(Average)
Retained
Revenue
1 20 100 2000
2 20 100 2000
3 20 1...
* Required 8
Quarter Employees Need
to do manual work
Salary per
Employee
Operational
Efficiency
1 0 0 0
2 0 0 0
3 1 1000 ...
 If i pay 50 today and earn 100 after one
month, did I make profit ?
 If i pay 50 today and earn 100 after one
year, did...
Should always take into consideration
Opportunity Cost
This can be
 Interest rate
 Apartment Rental
 Even your Time has...
 Net Present Value
 Internal Rate of Return
 Payback Period
 Discounted Payback Period
11
* Required 12
End Of
Period
Net Cash
Flow
Present Value Factor
(12%)
Present
Value
1 -85750 0.97 = 1/1.03 -85750
2 -14150 ...
 Pros
› Easy to calculate
 Cons
› Can be misleading (Value and not
percentage)
› Two projects with the same NPV 100,000....
I Want to know what is the interest rate of investing
in this project as if i am investing my money in a
bank
So what it i...
 Pros
› No need to have get organization Interest Rate
› Some companies has its own MARR (minimum attractive
rate of retu...
* Required 16
Quarter Net Cash Flow at End of
quarter
Running Total
1 -10000 -10000
2 -5000 -15000
3 12000 -3000
4 12000 9...
 Pros
› Calculations are easy
› Risk Period
 Cons
› Doesn't Take into consideration Value of
the money
› What is the pro...
* Required 18
Quarter Net Cash
Flow
Present Value
Factor
Discounte
d Cash
Flow
Running
Total
1 -85750 0.971 -83252 -83252
...
 Same as Payback period method, it just
takes into consideration the value of
the money
19
First Project : have bigged NPV but risky (7 quarters)
Third Project : has the biggest ROI (IRR) with least risk but lowes...
 Make sure to remember the following
Opportunity Cost
 Types of Revenues
› New Revenue
› Incremental Revenue
› Retained ...
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Financial prioritization

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In this present, I demonstrate the process of making a decision choosing between different Projects, and making financial priorities of these project

Published in: Business, Economy & Finance
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Financial prioritization

  1. 1. 1 2013 – May By: Ahmed Taha
  2. 2.  Types of Revenue  Estimating Feature / Product Revenue  What is the value of Money ?  Financial Measures 2
  3. 3.  New Revenue › New client  Incremental Revenue › Extra Fees From Current Clients  Retained Revenue › Cut Losses  Operational Efficiencies › Save Time and efforts 3
  4. 4. 4 Quarte r Developm ent Cost New Revenue Increme ntal Revenue Retained Revenue Operatio nal Efficienc y Net Cash Flow 1 -8000 0 0 0 0 -8000 2 -4000 500 500 500 500 -2000 3 1000 1000 1000 500 3500 4 5 6 7 8 We Want to reach That
  5. 5. * Required 5 Quarter New Customers Revenue Per Customer (Average) New Revenue 1 2 50 75 3750 3 50 75 3750 4 50 75 3750 5 100 75 7500 6 100 75 7500 7 100 75 7500 8 100 75 7500
  6. 6. * Required 6 Quarter Current Customers Revenue Per Customer (Average) Incremental Revenue 1 2 100 25 2500 3 200 25 5000 4 300 25 7500 5 400 25 10000 6 400 25 10000 7 400 25 10000 8 400 25 10000
  7. 7. * Required 7 Quarter Retained Customers Revenue Per Customer (Average) Retained Revenue 1 20 100 2000 2 20 100 2000 3 20 100 2000 4 20 100 2000 5 40 100 4000 6 40 100 4000 7 40 100 4000
  8. 8. * Required 8 Quarter Employees Need to do manual work Salary per Employee Operational Efficiency 1 0 0 0 2 0 0 0 3 1 1000 1000 4 1 1000 1000 5 1 1000 1000 6 2 1000 2000 7 2 1000 2000 8 2 1000 2000
  9. 9.  If i pay 50 today and earn 100 after one month, did I make profit ?  If i pay 50 today and earn 100 after one year, did I make profit ?  If i pay 50 today and earn 100 after ten year, did I make profit ? 9
  10. 10. Should always take into consideration Opportunity Cost This can be  Interest rate  Apartment Rental  Even your Time has a cost 10
  11. 11.  Net Present Value  Internal Rate of Return  Payback Period  Discounted Payback Period 11
  12. 12. * Required 12 End Of Period Net Cash Flow Present Value Factor (12%) Present Value 1 -85750 0.97 = 1/1.03 -85750 2 -14150 0.94 = 1/1.03^2 -13338 3 18250 0.91 = 1/1.03^3 16701 4 5 6 7 8 Net
  13. 13.  Pros › Easy to calculate  Cons › Can be misleading (Value and not percentage) › Two projects with the same NPV 100,000. One require big initial investment while the other require less initial investment at the beginning 13
  14. 14. I Want to know what is the interest rate of investing in this project as if i am investing my money in a bank So what it i* ? , the interest rate that will make the present value of the money spent equal to zero Equation => Σ ( V * (1 + i) ^ -t) = 0 14
  15. 15.  Pros › No need to have get organization Interest Rate › Some companies has its own MARR (minimum attractive rate of return)  Cons › difficult to calculate › Can be misleading  If a project with 45% IRR but its value is small and it requires tying up a critical developer resource  While another with 25% IRR value is big and it requires tying up the same critical developer resource 15
  16. 16. * Required 16 Quarter Net Cash Flow at End of quarter Running Total 1 -10000 -10000 2 -5000 -15000 3 12000 -3000 4 12000 9000 5 X X 6 X X 7 X X
  17. 17.  Pros › Calculations are easy › Risk Period  Cons › Doesn't Take into consideration Value of the money › What is the profitability of the project ? 17
  18. 18. * Required 18 Quarter Net Cash Flow Present Value Factor Discounte d Cash Flow Running Total 1 -85750 0.971 -83252 -83252 2 -14150 0.943 -13338 <0 3 <0 4 <0 5 >0 6 >0 7 >0
  19. 19.  Same as Payback period method, it just takes into consideration the value of the money 19
  20. 20. First Project : have bigged NPV but risky (7 quarters) Third Project : has the biggest ROI (IRR) with least risk but lowest NPV Second Project has teh lowest ROI but can be combined with the Third project so investment is almost same as the first project while risk and ROI is moderate. 20
  21. 21.  Make sure to remember the following Opportunity Cost  Types of Revenues › New Revenue › Incremental Revenue › Retained Revenue › Operational Efficiencies 21

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