This PPT aims to provide knowledge and understanding to the learner about the concept of Stock Market. What is Stock Market, What is Market Capitalization, What is Market Cap, What is PE Ratio, What is PB Ratio, What is Debt to Equity, What is ROE, What is ROCE, What is EPS, What is Dividend Yield, What is PEG Ratio, What is Book Value, What is Face Value
What is EBIT, What is EBITDA
Formula of PE Ratio, Formula of ROCE, Formula of PB Ratio
Formula of PEG Ratio, Formula of EPS.
Part09 finance investment ratio analysis investment ratioRamadan Babers, PhD
This document discusses various investment ratios used to assess company performance and stock value. It defines five key ratios: return on equity (ROE), earnings per share (EPS), price-earnings ratio (P/E), return on common equity (ROCE), and market to book ratio. For each ratio, it provides the calculation and explains how the ratio is used and what higher or lower values may indicate about the company's financials and stock price. Examples are given to demonstrate how to calculate ROE, EPS, and P/E using financial data from an example company's balance sheet and income statement.
This document discusses various types of financial ratios used in quantitative analysis of companies. It provides definitions and formulas for different categories of ratios including growth ratios, profitability ratios, leverage ratios, management efficiency ratios, and valuation ratios. Specifically, it defines revenue growth ratio, profit growth ratio, return on equity, return on capital employed, interest coverage ratio, debt to equity ratio, debt to asset ratio, inventory turnover ratio, debtors day ratio, price to earnings ratio, PE to earnings growth ratio, and price to book value ratio.
Ratio analysis is used to evaluate various aspects of a company's financial performance and position. It involves calculating and comparing different financial ratios over time and against industry benchmarks. The key types of ratios analyzed include liquidity ratios, solvency ratios, profitability ratios, and activity ratios. Liquidity ratios measure a company's ability to pay short-term debts, solvency ratios evaluate long-term debt repayment ability, profitability ratios assess ability to generate profits, and activity ratios analyze asset usage efficiency. Common ratios calculated under each type include the current ratio, debt-to-equity ratio, net profit margin, and inventory turnover ratio, respectively. Ratio analysis provides important insights into a company's financial health, risks and performance trends
for full text article go to : www.accountingchimp.com/ratio-analysis/
In this article of Ratio Analysis, you will learn how they can be used to analyze a company. Understand the meaning and formulas associated with Liquidity ratios, Profitability ratios, Turnover ratios, and Debt ratios
This document discusses financial ratio analysis and provides examples of calculating various ratios for a company called Davies Inc. and comparing them to peer group averages. It defines different types of ratios including liquidity, asset management, profitability, leverage, and market value ratios. Formulas for calculating each ratio are given. An example shows Davies Inc.'s ratios calculated from financial data provided and compared to the peer group averages. Additional questions with examples of calculating total assets turnover and debt ratio are also included.
The document discusses various profitability ratios that can be used to analyze a company's ability to generate profits. It defines key profitability ratios like gross profit ratio, net profit ratio, operating profit ratio, return on assets, return on equity, return on capital employed, earnings per share, dividend payout ratio, and provides the formulas to calculate each ratio. The document also discusses various turnover or activity ratios like inventory turnover ratio, debtors turnover ratio, creditors turnover ratio, fixed assets turnover ratio, and current assets turnover ratio that measure how efficiently a company utilizes its assets and collects cash.
The document discusses various aspects of capital structure including:
- Defining capital structure and the components that make up a company's financial structure
- Approaches to determine the appropriate capital structure such as EBIT-EPS, valuation, and cash flow approaches
- The concept of optimal capital structure which maximizes share price value and minimizes cost of capital
- Different forms of capital structure such as equity only, combinations of equity and debt, etc.
- The concepts of leverage including operating, financial, and combined leverage and how they impact risk and returns
The document discusses different types of leverage used by firms, including financial leverage, operational leverage, and combined leverage. Financial leverage refers to the use of debt in a firm's capital structure, with measures including debt ratio and interest coverage ratio. Operational leverage refers to the use of fixed operating costs. Combined leverage shows the relationship between revenue, sales, and taxable income, and is calculated as the product of financial leverage and operational leverage. The document also provides examples of how different types of leverage are used in income statements and to amplify the effects of changes in sales, costs, and profits.
Part09 finance investment ratio analysis investment ratioRamadan Babers, PhD
This document discusses various investment ratios used to assess company performance and stock value. It defines five key ratios: return on equity (ROE), earnings per share (EPS), price-earnings ratio (P/E), return on common equity (ROCE), and market to book ratio. For each ratio, it provides the calculation and explains how the ratio is used and what higher or lower values may indicate about the company's financials and stock price. Examples are given to demonstrate how to calculate ROE, EPS, and P/E using financial data from an example company's balance sheet and income statement.
This document discusses various types of financial ratios used in quantitative analysis of companies. It provides definitions and formulas for different categories of ratios including growth ratios, profitability ratios, leverage ratios, management efficiency ratios, and valuation ratios. Specifically, it defines revenue growth ratio, profit growth ratio, return on equity, return on capital employed, interest coverage ratio, debt to equity ratio, debt to asset ratio, inventory turnover ratio, debtors day ratio, price to earnings ratio, PE to earnings growth ratio, and price to book value ratio.
Ratio analysis is used to evaluate various aspects of a company's financial performance and position. It involves calculating and comparing different financial ratios over time and against industry benchmarks. The key types of ratios analyzed include liquidity ratios, solvency ratios, profitability ratios, and activity ratios. Liquidity ratios measure a company's ability to pay short-term debts, solvency ratios evaluate long-term debt repayment ability, profitability ratios assess ability to generate profits, and activity ratios analyze asset usage efficiency. Common ratios calculated under each type include the current ratio, debt-to-equity ratio, net profit margin, and inventory turnover ratio, respectively. Ratio analysis provides important insights into a company's financial health, risks and performance trends
for full text article go to : www.accountingchimp.com/ratio-analysis/
In this article of Ratio Analysis, you will learn how they can be used to analyze a company. Understand the meaning and formulas associated with Liquidity ratios, Profitability ratios, Turnover ratios, and Debt ratios
This document discusses financial ratio analysis and provides examples of calculating various ratios for a company called Davies Inc. and comparing them to peer group averages. It defines different types of ratios including liquidity, asset management, profitability, leverage, and market value ratios. Formulas for calculating each ratio are given. An example shows Davies Inc.'s ratios calculated from financial data provided and compared to the peer group averages. Additional questions with examples of calculating total assets turnover and debt ratio are also included.
The document discusses various profitability ratios that can be used to analyze a company's ability to generate profits. It defines key profitability ratios like gross profit ratio, net profit ratio, operating profit ratio, return on assets, return on equity, return on capital employed, earnings per share, dividend payout ratio, and provides the formulas to calculate each ratio. The document also discusses various turnover or activity ratios like inventory turnover ratio, debtors turnover ratio, creditors turnover ratio, fixed assets turnover ratio, and current assets turnover ratio that measure how efficiently a company utilizes its assets and collects cash.
The document discusses various aspects of capital structure including:
- Defining capital structure and the components that make up a company's financial structure
- Approaches to determine the appropriate capital structure such as EBIT-EPS, valuation, and cash flow approaches
- The concept of optimal capital structure which maximizes share price value and minimizes cost of capital
- Different forms of capital structure such as equity only, combinations of equity and debt, etc.
- The concepts of leverage including operating, financial, and combined leverage and how they impact risk and returns
The document discusses different types of leverage used by firms, including financial leverage, operational leverage, and combined leverage. Financial leverage refers to the use of debt in a firm's capital structure, with measures including debt ratio and interest coverage ratio. Operational leverage refers to the use of fixed operating costs. Combined leverage shows the relationship between revenue, sales, and taxable income, and is calculated as the product of financial leverage and operational leverage. The document also provides examples of how different types of leverage are used in income statements and to amplify the effects of changes in sales, costs, and profits.
The document analyzes the financial performance of British Land Company from 2005-2008 across several key metrics:
- Liquidity was positive as the company was able to pay short-term debts from operating cash flows and liquidity reserves.
- Solvency ratios were strong with low net debt and high operating coverage.
- Profitability as measured by ROA and ROE was lower than peers but consistent over time due to the company's differentiation strategy.
- From an investor's perspective, earnings and dividends grew annually though the stock was sometimes under or overpriced relative to book value. Overall ratios indicate the company is well-positioned in the real estate industry.
This document discusses different types of financial leverage used by firms, including short-term, medium-term, and long-term leverage as well as ownership and creditorship securities. It also discusses why firms employ borrowed funds through financial leverage, such as to gain tax advantages and earn returns higher than interest rates. Methods for calculating financial leverage ratios are presented, including debt ratio, debt-equity ratio, and interest coverage ratio. The impact of financial leverage on earnings per share, return on equity, and return on investment is explained through EBIT-EPS analysis. Operating leverage and its relationship to financial leverage in determining a firm's overall combined leverage and risk is also covered.
Analysis and Interpretation of Financial Statement.pptxmarvinrosel4
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, ratio analysis, and calculations. It defines each technique and provides examples of key financial ratios used to evaluate a company's profitability, liquidity, solvency, operational efficiency, and financial health. These ratios include gross profit margin, return on assets, current ratio, debt-to-equity ratio, inventory turnover, and accounts receivable turnover. The document aims to teach learners how to interpret financial statement data using these analytical methods.
This document provides definitions and calculations for various financial ratios of Eicher motors LTD, including:
- Current ratio of 1.90:1, measuring ability to meet short-term obligations.
- Quick ratio of 1.59:1, measuring ability to meet obligations without inventory.
- Cash ratio of 0.009:1, measuring liquidity using only cash.
It then defines and calculates several other ratios like debt-equity, return on equity, asset turnover, and more.
This document provides definitions and calculations for various financial ratios of Eicher motors LTD, including:
- Current ratio of 1.90:1, measuring ability to meet short-term obligations.
- Quick ratio of 1.59:1, measuring ability to meet obligations without inventory.
- Cash ratio of 0.009:1, measuring liquidity using only cash.
It then defines and calculates several other ratios like debt-equity, return on equity, asset turnover, and more.
Assets are resources with value held by a company that can be current (held <1 year), long term (>1 year), or intangible. The balance sheet lists a company's assets, liabilities, and shareholders' equity, which must balance. The income statement shows revenues, expenses, and profits over a period. The cash flow statement has operating, investing, and financing sections and reconciles balance sheet/income statement entries to cash flows. Key metrics include return on equity (ROE), return on assets (ROA), return on investment (ROI), and earnings before interest, taxes, depreciation, and amortization (EBITDA).
The document provides an overview of ratio analysis, including definitions, purposes, types of ratios, and calculations. Specifically, it discusses:
- Ratio analysis involves calculating and interpreting financial ratios to gain insight into a company's profitability, liquidity, operational efficiency, and solvency.
- Key types of ratios covered include liquidity ratios, profitability ratios, solvency ratios, and turnover ratios. Specific ratios defined include current ratio, quick ratio, debt-to-equity ratio, return on equity, inventory turnover ratio, and accounts receivable turnover ratio.
- Calculations and interpretations of various ratios are presented, along with what higher or lower ratios may indicate about the company's financial health.
Meeting 3 - Profitability Ratios (Financial Reporting and Analysis)Albina Gaisina
The document discusses various profitability ratios used to analyze a company's financial performance, including:
1. Gross profit margin - Measures profitability after direct costs are subtracted from revenue.
2. Operating profit margin - Accounts for indirect costs in addition to direct costs.
3. Net profit margin - Shows profitability after all expenses including interest and taxes.
4. Return on assets - Measures how efficiently a company uses its assets to generate earnings.
5. Return on equity - Assesses how efficiently a company generates profit relative to shareholders' equity.
This document discusses different profitability ratios used to analyze financial performance, including return on sales (ROS), return on assets (ROA), and return on equity (ROE). ROS compares net profit to sales and shows profit as a percentage of each sale. ROA compares net profit or earnings to total assets to measure return on invested capital. ROE compares net profit to equity to measure return to shareholders. The document provides formulas to calculate each ratio and explains they are useful for comparing performance over time, against competitors, and targeted levels that depend on business risk.
This document discusses various profitability ratios used to analyze financial performance, including return on sales (ROS), return on assets (ROA), and return on equity (ROE). ROS compares net profit to sales. ROA compares net profit or earnings before interest and taxes to total assets. ROE compares net profit to equity. The document provides formulas to calculate each ratio and explains they are useful for comparing performance to competitors, understanding profitability, and establishing financial targets.
Chapter 6_Interpretation of Financial StatementPresana1
This document provides an overview of ratio analysis for financial statement evaluation. It defines ratios that measure profitability, liquidity, management efficiency, leverage, and valuation/growth. Specific ratios are defined along with their formulas and uses. An example is provided to demonstrate ratio calculations for the Norton Corporation using data on its income statement, balance sheet, and other financial details. Ratios computed include current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, return on equity, earnings per share, and price-earnings ratio. The document also outlines advantages and limitations of ratio analysis for stakeholders.
This powerpoint presentations briefs about:
Financial ratios
Categories of Financial ratios
Generating stock ideas
The Due diligence – Checklist
Equity Research
The document discusses return on equity (ROE) and how to analyze it using the DuPont formula. The DuPont formula breaks down ROE into three drivers: profit margin, asset turnover, and financial leverage. This breakdown allows investors to determine which factors are helping or hurting a company's performance and ROE. The document provides an example calculation of the DuPont formula for a sample company. It finds the company's declining ROE was primarily due to decreasing financial leverage through less debt usage, while margins and turnover improved. Comparing the company to others in its industry provides further context for the ROE and its drivers.
Financial ratios are indispensable to form a clear financial insight in the position of a company. They show the financial health and the potential of the company.
This document discusses various financial metrics used to evaluate company performance, including return on capital employed (ROCE), return on investment (ROI), asset turnover, receivable turnover, inventory turnover, current ratio, and quick ratio. ROCE measures profitability relative to capital invested, while ROI evaluates profit relative to investment cost. Asset turnover indicates sales generated per dollar of assets. Current and quick ratios analyze liquidity by comparing current assets to current liabilities.
Running head: MILESTONE 3 1
MILESTONE 3 4
Robert Shulzinsky
Southern New Hampshure University
6 January 2018
Capital Budgeting Data
Net Present Value (NPV) of the Project
Net Present Value for the project for the five years will be given by the NPV value for the cash flows as shown by the capital budgeting sheet for milestone 3 minus the initial outlay.
NPV of the project = (CF1+CF2+CF3+CF4+CF5) – Initial outlay
= ($21,453,688.38)
Internal Rate of Return (IRR) of the Project
Internal rate of return (IRR) represents the interest rate at which the net present value of all the cash flows of a project will break even or will be equal to just zero value. From the calculations on the capital budgeting sheet of the milestone 3, the IRR of the project is 34% meaning that the company’s investments will need to grow at a rate of 34% to equal the initial outlay, which is way much higher than the interest rate in the market.
Implications of the Calculations
One of the implications of the calculations of the net present value calculations of the project is that it reduces that amount of cash flows for the project. Net present value calculations discount the amount of funds that will be received in future using the interest rate of the company. In this context, the amount is discounted because of the effect of time on the money received b a company. Another aspect of the net present value is that it enables the management of the company anticipate what the company will receive in future and take into account the inflows and outflows when making decisions (Peterson & Fabozzi, 2014).
On the other hand, internal rate of return provide a metric in capital budgeting for measurement of the profitability of a project with the given investments. The 34% internal rate of return mean that the company will require to grow its investments or the compound the investments by 34% in order to enable the company make the investment. A high internal rate of return is desirable when the company want to undertake the project. I would recommend the company to reject the project since it provides a negative net present value meaning that it will not be able to repay the initial outlay of funds in the company. In this context, the company will only be able to make cash flows, which are positive but not able to recover its outlay. Regardless of the fact that the IRR of the company is high, which is good for any investment, the net present value does not do any good to the project (Peterson & Fabozzi, 2014).
Difference between NPV and IRR
Net present value uses the market interest rate to discount the cash flows of the company showing the real money value that will be received by the company over time. Th ...
Warren Buffett rarely invests in tech stocks because he often does not understand them, which is outside his area of expertise. Unless an investor understands a company's business model and the drivers of future growth, they risk being blindsided. Fundamental analysis attempts to determine a company's value by focusing on internal factors like finances, management, and products, as well as external factors such as the economy and interest rates, to evaluate growth potential and investment risk. Performing various financial ratio calculations and comparing them over time and between competitors can provide important insights for fundamental investors.
The document provides an introduction to fundamental analysis for new investors. It discusses analyzing a company's financial statements including earnings, earnings per share, price-to-earnings ratio, dividend yield, dividend payout ratio, book value, price/book ratio, and price/sales ratio. The objective of fundamental analysis is to use these tools to determine a company's intrinsic value and decide whether to buy, hold, or sell its stock.
This PPT aims to provide knowledge and understanding of the concept of Brahminic education, the core values in Brahminic education, the evolution of Brahminic education, the curriculum of Brahminic education, the aims of Brahminic education, the role of teachers in Brahminic education, Para Vidya and Apara Vidya and so on.
This PPT aims to provide knowledge and understanding of the concept of Vedic education, the aims of Vedic education, methods of teaching in the Vedic education system, the core values of the Vedic education system, stages of learning, the role of the teacher in the Vedic education system, the impact of the Vedic education system, and so on.
More Related Content
Similar to INTRODUCTION TO FINANCIAL METRICS FOR STOCK MARKET ANALYSIS.pptx
The document analyzes the financial performance of British Land Company from 2005-2008 across several key metrics:
- Liquidity was positive as the company was able to pay short-term debts from operating cash flows and liquidity reserves.
- Solvency ratios were strong with low net debt and high operating coverage.
- Profitability as measured by ROA and ROE was lower than peers but consistent over time due to the company's differentiation strategy.
- From an investor's perspective, earnings and dividends grew annually though the stock was sometimes under or overpriced relative to book value. Overall ratios indicate the company is well-positioned in the real estate industry.
This document discusses different types of financial leverage used by firms, including short-term, medium-term, and long-term leverage as well as ownership and creditorship securities. It also discusses why firms employ borrowed funds through financial leverage, such as to gain tax advantages and earn returns higher than interest rates. Methods for calculating financial leverage ratios are presented, including debt ratio, debt-equity ratio, and interest coverage ratio. The impact of financial leverage on earnings per share, return on equity, and return on investment is explained through EBIT-EPS analysis. Operating leverage and its relationship to financial leverage in determining a firm's overall combined leverage and risk is also covered.
Analysis and Interpretation of Financial Statement.pptxmarvinrosel4
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, ratio analysis, and calculations. It defines each technique and provides examples of key financial ratios used to evaluate a company's profitability, liquidity, solvency, operational efficiency, and financial health. These ratios include gross profit margin, return on assets, current ratio, debt-to-equity ratio, inventory turnover, and accounts receivable turnover. The document aims to teach learners how to interpret financial statement data using these analytical methods.
This document provides definitions and calculations for various financial ratios of Eicher motors LTD, including:
- Current ratio of 1.90:1, measuring ability to meet short-term obligations.
- Quick ratio of 1.59:1, measuring ability to meet obligations without inventory.
- Cash ratio of 0.009:1, measuring liquidity using only cash.
It then defines and calculates several other ratios like debt-equity, return on equity, asset turnover, and more.
This document provides definitions and calculations for various financial ratios of Eicher motors LTD, including:
- Current ratio of 1.90:1, measuring ability to meet short-term obligations.
- Quick ratio of 1.59:1, measuring ability to meet obligations without inventory.
- Cash ratio of 0.009:1, measuring liquidity using only cash.
It then defines and calculates several other ratios like debt-equity, return on equity, asset turnover, and more.
Assets are resources with value held by a company that can be current (held <1 year), long term (>1 year), or intangible. The balance sheet lists a company's assets, liabilities, and shareholders' equity, which must balance. The income statement shows revenues, expenses, and profits over a period. The cash flow statement has operating, investing, and financing sections and reconciles balance sheet/income statement entries to cash flows. Key metrics include return on equity (ROE), return on assets (ROA), return on investment (ROI), and earnings before interest, taxes, depreciation, and amortization (EBITDA).
The document provides an overview of ratio analysis, including definitions, purposes, types of ratios, and calculations. Specifically, it discusses:
- Ratio analysis involves calculating and interpreting financial ratios to gain insight into a company's profitability, liquidity, operational efficiency, and solvency.
- Key types of ratios covered include liquidity ratios, profitability ratios, solvency ratios, and turnover ratios. Specific ratios defined include current ratio, quick ratio, debt-to-equity ratio, return on equity, inventory turnover ratio, and accounts receivable turnover ratio.
- Calculations and interpretations of various ratios are presented, along with what higher or lower ratios may indicate about the company's financial health.
Meeting 3 - Profitability Ratios (Financial Reporting and Analysis)Albina Gaisina
The document discusses various profitability ratios used to analyze a company's financial performance, including:
1. Gross profit margin - Measures profitability after direct costs are subtracted from revenue.
2. Operating profit margin - Accounts for indirect costs in addition to direct costs.
3. Net profit margin - Shows profitability after all expenses including interest and taxes.
4. Return on assets - Measures how efficiently a company uses its assets to generate earnings.
5. Return on equity - Assesses how efficiently a company generates profit relative to shareholders' equity.
This document discusses different profitability ratios used to analyze financial performance, including return on sales (ROS), return on assets (ROA), and return on equity (ROE). ROS compares net profit to sales and shows profit as a percentage of each sale. ROA compares net profit or earnings to total assets to measure return on invested capital. ROE compares net profit to equity to measure return to shareholders. The document provides formulas to calculate each ratio and explains they are useful for comparing performance over time, against competitors, and targeted levels that depend on business risk.
This document discusses various profitability ratios used to analyze financial performance, including return on sales (ROS), return on assets (ROA), and return on equity (ROE). ROS compares net profit to sales. ROA compares net profit or earnings before interest and taxes to total assets. ROE compares net profit to equity. The document provides formulas to calculate each ratio and explains they are useful for comparing performance to competitors, understanding profitability, and establishing financial targets.
Chapter 6_Interpretation of Financial StatementPresana1
This document provides an overview of ratio analysis for financial statement evaluation. It defines ratios that measure profitability, liquidity, management efficiency, leverage, and valuation/growth. Specific ratios are defined along with their formulas and uses. An example is provided to demonstrate ratio calculations for the Norton Corporation using data on its income statement, balance sheet, and other financial details. Ratios computed include current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, return on equity, earnings per share, and price-earnings ratio. The document also outlines advantages and limitations of ratio analysis for stakeholders.
This powerpoint presentations briefs about:
Financial ratios
Categories of Financial ratios
Generating stock ideas
The Due diligence – Checklist
Equity Research
The document discusses return on equity (ROE) and how to analyze it using the DuPont formula. The DuPont formula breaks down ROE into three drivers: profit margin, asset turnover, and financial leverage. This breakdown allows investors to determine which factors are helping or hurting a company's performance and ROE. The document provides an example calculation of the DuPont formula for a sample company. It finds the company's declining ROE was primarily due to decreasing financial leverage through less debt usage, while margins and turnover improved. Comparing the company to others in its industry provides further context for the ROE and its drivers.
Financial ratios are indispensable to form a clear financial insight in the position of a company. They show the financial health and the potential of the company.
This document discusses various financial metrics used to evaluate company performance, including return on capital employed (ROCE), return on investment (ROI), asset turnover, receivable turnover, inventory turnover, current ratio, and quick ratio. ROCE measures profitability relative to capital invested, while ROI evaluates profit relative to investment cost. Asset turnover indicates sales generated per dollar of assets. Current and quick ratios analyze liquidity by comparing current assets to current liabilities.
Running head: MILESTONE 3 1
MILESTONE 3 4
Robert Shulzinsky
Southern New Hampshure University
6 January 2018
Capital Budgeting Data
Net Present Value (NPV) of the Project
Net Present Value for the project for the five years will be given by the NPV value for the cash flows as shown by the capital budgeting sheet for milestone 3 minus the initial outlay.
NPV of the project = (CF1+CF2+CF3+CF4+CF5) – Initial outlay
= ($21,453,688.38)
Internal Rate of Return (IRR) of the Project
Internal rate of return (IRR) represents the interest rate at which the net present value of all the cash flows of a project will break even or will be equal to just zero value. From the calculations on the capital budgeting sheet of the milestone 3, the IRR of the project is 34% meaning that the company’s investments will need to grow at a rate of 34% to equal the initial outlay, which is way much higher than the interest rate in the market.
Implications of the Calculations
One of the implications of the calculations of the net present value calculations of the project is that it reduces that amount of cash flows for the project. Net present value calculations discount the amount of funds that will be received in future using the interest rate of the company. In this context, the amount is discounted because of the effect of time on the money received b a company. Another aspect of the net present value is that it enables the management of the company anticipate what the company will receive in future and take into account the inflows and outflows when making decisions (Peterson & Fabozzi, 2014).
On the other hand, internal rate of return provide a metric in capital budgeting for measurement of the profitability of a project with the given investments. The 34% internal rate of return mean that the company will require to grow its investments or the compound the investments by 34% in order to enable the company make the investment. A high internal rate of return is desirable when the company want to undertake the project. I would recommend the company to reject the project since it provides a negative net present value meaning that it will not be able to repay the initial outlay of funds in the company. In this context, the company will only be able to make cash flows, which are positive but not able to recover its outlay. Regardless of the fact that the IRR of the company is high, which is good for any investment, the net present value does not do any good to the project (Peterson & Fabozzi, 2014).
Difference between NPV and IRR
Net present value uses the market interest rate to discount the cash flows of the company showing the real money value that will be received by the company over time. Th ...
Warren Buffett rarely invests in tech stocks because he often does not understand them, which is outside his area of expertise. Unless an investor understands a company's business model and the drivers of future growth, they risk being blindsided. Fundamental analysis attempts to determine a company's value by focusing on internal factors like finances, management, and products, as well as external factors such as the economy and interest rates, to evaluate growth potential and investment risk. Performing various financial ratio calculations and comparing them over time and between competitors can provide important insights for fundamental investors.
The document provides an introduction to fundamental analysis for new investors. It discusses analyzing a company's financial statements including earnings, earnings per share, price-to-earnings ratio, dividend yield, dividend payout ratio, book value, price/book ratio, and price/sales ratio. The objective of fundamental analysis is to use these tools to determine a company's intrinsic value and decide whether to buy, hold, or sell its stock.
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How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
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On 12 June 2024 the Institute for Economic Research and Policy Consulting (IER) held an online event “Economic Trends from a Business Perspective (May 2024)”.
During the event, the results of the 25-th monthly survey of business executives “Ukrainian Business during the war”, which was conducted in May 2024, were presented.
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✅ Video presentation: https://youtu.be/4ZvsSKd1MzE
5 Compelling Reasons to Invest in Cryptocurrency NowDaniel
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In World Expo 2010 Shanghai – the most visited Expo in the World History
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China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
2. MARKET CAPITALIZATION
• Market capitalization, also known as market cap, is a measure of a company's size
and value. It is calculated by multiplying the total number of outstanding shares of
a company by its current stock price.
• In other words, market capitalization is the total value of a company's outstanding
shares, as determined by the stock market. It is a way to estimate the public
perception of a company's worth and can be used to compare companies of
different sizes in the same industry.
• Market capitalization is typically categorized into three tiers: large-cap, mid-cap,
and small-cap.
3. FORMULA
•To calculate market capitalization, you will need to know
the current stock price and the total number of outstanding
shares of a company. The formula for calculating market
capitalization is:
•Market Capitalization = Current Stock Price x Total
Number of Outstanding Shares.
4. EXAMPLE
• For example, let's say that XYZ company has a current stock price of ₹ 50
and a total number of outstanding shares of 100 million. To calculate the
market capitalization of XYZ, we would use the formula:
• Market Capitalization = ₹50 x 100,000,000 Market Capitalization =
₹5,000,000,000
5. PE RATIO
•PE ratio stands for Price-to-Earnings ratio, which is a
valuation ratio used to measure the relative value of a
company's stock. It is calculated by dividing the current
market price of a company's stock by its earnings per share
(EPS).
6. FORMULA
•The formula for calculating PE ratio is:
•PE Ratio = Market Price per Share / Earnings per
Share.
7. EXAMPLE
• For example, if a company has a current stock price of ₹50 and an EPS of
₹5, its PE ratio would be:
• PE Ratio = ₹50 / ₹5 = 10
• A PE ratio of 10 means that investors are willing to pay ₹10 for every ₹1 of
earnings that the company generates.
8. SIGNIFICANCE
• PE ratio is used as an indicator of whether a stock is overvalued or
undervalued. A higher PE ratio may indicate that a stock is overvalued,
meaning that investors are willing to pay a premium for the stock based on
the expectation of future earnings growth. A lower PE ratio may indicate that
a stock is undervalued, meaning that it may be a good value investment.
9. PB RATIO
• PB ratio stands for Price-to-Book ratio, which is a valuation ratio used to
measure the value of a company's stock relative to its book value. It is
calculated by dividing the current market price per share by the book value
per share.
• The book value of a company is the value of its assets minus its liabilities
and is essentially what would be left over if the company sold all of its
assets and paid off all of its debts. The book value per share is calculated by
dividing the book value by the total number of outstanding shares.
10. FORMULA
•The formula for calculating PB ratio is:
•PB Ratio = Market Price per Share / Book
Value per Share
11. EXAMPLE
•For example, if a company has a current stock price of ₹50
and a book value per share of ₹10, its PB ratio would be:
•PB Ratio = ₹50 / ₹10 = 5
•A PB ratio of 5 means that investors are willing to pay ₹5
for every ₹1 of book value that the company has.
12. SIGNIFICANCE
• PB ratio is used as an indicator of whether a stock is overvalued or
undervalued relative to its book value. A higher PB ratio may
indicate that a stock is overvalued, meaning that investors are
willing to pay a premium for the stock based on expectations of
future growth. A lower PB ratio may indicate that a stock is
undervalued, meaning that it may be a good value investment.
13. DEBT TO EQUITY (D/E)
•Debt to Equity (D/E) ratio is a financial ratio that
measures a company's total debt against its total
equity. It is a measure of a company's financial
leverage and indicates how much debt the company
has for each unit of equity.
14. FORMULA
• The formula for calculating D/E ratio is:
• D/E Ratio = Total Debt / Total Equity
• Total debt includes all of a company's short-term and long-term
debts, including bank loans, bonds, and other borrowings. Total
equity includes all of a company's stockholders' equity, including
common stock, preferred stock, and retained earnings.
15. FORMULA
•For example, if a company has ₹ 100 million in total debt
and ₹ 200 million in total equity, its D/E ratio would be:
•D/E Ratio = ₹ 100 million / ₹ 200 million = 0.5
•A D/E ratio of 0.5 means that the company has ₹ 0.50 of
debt for every ₹ 1 of equity.
16. SIGNIFICANCE
•A higher D/E ratio indicates that a company is more heavily
reliant on debt financing and may be considered riskier to
investors because a larger portion of the company's assets
are financed by debt rather than equity. Conversely, a lower
D/E ratio indicates that a company has a lower amount of
debt relative to its equity and may be considered less risky.
17. ROE
•ROE stands for Return on Equity, which is a financial ratio
that measures the profitability of a company in relation to
the amount of equity invested by its shareholders. It
represents the percentage of net income generated by a
company's equity investment.
18. FORMULA
• The formula for calculating ROE is:
• ROE = Net Income / Shareholders' Equity
• Net income is the company's total earnings, minus any expenses
and taxes. Shareholders' equity is the total amount of money
invested by shareholders in the company, including retained
earnings, common and preferred stock, and other equity.
19. EXAMPLE
•For example, if a company has a net income of ₹ 50 million
and a shareholders' equity of ₹ 500 million, its ROE would
be:
•ROE = ₹ 50 million / ₹ 500 million = 10%
•A 10% ROE means that for every ₹ 1 invested by
shareholders, the company generated 10 cents of profit.
20. SIGNIFICANCE
•ROE is an important indicator of a company's financial
health and its ability to generate profits for its shareholders.
A higher ROE indicates that the company is more efficient
at generating profits from its equity investment, while a
lower ROE indicates that the company is less efficient at
generating profits from its equity investment.
21. ROCE
•ROCE stands for Return on Capital Employed, which is a
financial ratio that measures the profitability of a company
in relation to the total capital employed in its business
operations. It indicates how effectively a company is using
its capital to generate profits.
22. FORMULA
• The formula for calculating ROCE is:
• ROCE = Earnings Before Interest and Taxes (EBIT) / (Total Assets - Current
Liabilities)
• EBIT is a measure of a company's operating profitability, which represents the
company's earnings before interest and taxes are deducted. Total assets represent
the total amount of capital invested in the company's operations, including fixed
assets, current assets, and any other investments. Current liabilities are the debts
and obligations of the company that are due within one year.
23. EXAMPLE
• For example, if a company has an EBIT of ₹ 50 million, total assets of ₹ 500
million, and current liabilities of ₹ 100 million, its ROCE would be:
• ROCE = ₹ 50 million / (₹ 500 million - ₹ 100 million) = 12.5%
• A 12.5% ROCE means that for every ₹ 1 of capital employed in the
company's operations, the company generated 12.5 cents of profit.
24. SIGNIFICANCE
• ROCE is an important indicator of a company's financial health
and its ability to generate profits from its investments. A higher
ROCE indicates that the company is more efficient at generating
profits from its capital investments, while a lower ROCE
indicates that the company is less efficient at generating profits
from its capital investments.
25. EPS
•EPS stands for Earnings Per Share, which is a
financial ratio that measures the profitability of a
company on a per-share basis. EPS represents the
portion of a company's net income that is allocated to
each outstanding share of its common stock.
26. FORMULA
• The formula for calculating EPS is:
• EPS = (Net Income - Preferred Dividends) / Average Common Shares
Outstanding
• Net income is the company's total earnings, minus any expenses and taxes.
Preferred dividends are the dividends paid to holders of preferred stock.
Average common shares outstanding represent the average number of
outstanding common shares during a period.
27. EXAMPLE
• For example, if a company has a net income of ₹ 100 million, preferred
dividends of ₹ 10 million, and an average of 50 million common shares
outstanding, its EPS would be:
• EPS = (₹ 100 million - ₹ 10 million) / 50 million = ₹ 1.80 per share
• This means that for each outstanding common share, the company generated
₹ 1.80 of profit.
28. SIGNIFICANCE
• EPS is an important indicator of a company's financial
performance and its ability to generate profits for its
shareholders. Investors often use EPS to evaluate a company's
stock price and compare it to other companies in the same
industry. A higher EPS generally indicates that the company is
more profitable and may lead to an increase in the company's
stock price.
29. PEG RATIO
• PEG ratio stands for Price/Earnings-to-Growth ratio, which
is a financial metric used to evaluate the value of a
company's stock based on its earnings growth potential.
The PEG ratio takes into account a company's current P/E
ratio and its expected earnings growth rate.
30. FORMULA
• The formula for calculating the PEG ratio is:
• PEG Ratio = Price-to-Earnings (P/E) Ratio / Earnings Growth Rate
• The P/E ratio represents the current market price of a company's stock
divided by its earnings per share (EPS). The earnings growth rate
represents the percentage increase in a company's earnings over a
specific time period, typically one year.
31. EXAMPLE
• For example, if a company has a P/E ratio of 20 and an expected earnings
growth rate of 10%, its PEG ratio would be:
• PEG Ratio = 20 / 10 = 2
• A PEG ratio of less than 1 is generally considered undervalued, while a PEG
ratio of greater than 1 is considered overvalued. A PEG ratio of 1 indicates
that the stock is fairly valued based on its earnings growth potential.
32. SIGNIFICANCE
• The PEG ratio can be a useful tool for investors to evaluate the
value of a company's stock, as it takes into account both the
current earnings and the expected earnings growth. However, it's
important to note that the PEG ratio should be used in
conjunction with other financial metrics and analysis, as it does
not provide a complete picture of a company's financial health or
future prospects.
33. BOOK VALUE
•Book value, also known as shareholder's equity, is a
financial metric that represents the total value of a
company's assets that are owned by its shareholders.
It is calculated by subtracting a company's total
liabilities from its total assets.
34. FORMULA
• The formula for calculating book value is:
• Book Value = Total Assets - Total Liabilities
• Total assets include all of a company's tangible and intangible assets,
such as cash, inventory, property, plant and equipment, and intellectual
property. Total liabilities include all of a company's debts and
obligations, such as loans, accounts payable, and taxes owed.
35. EXAMPLE
• For example, if a company has total assets of ₹ 500 million and total
liabilities of ₹ 250 million, its book value would be:
• Book Value = ₹ 500 million - ₹ 250 million = ₹ 250 million
• This means that the company's assets are worth ₹ 250 million more than its
liabilities and represents the total value of the company's net assets that are
owned by its shareholders.
36. SIGNIFICANCE
• Book value is an important financial metric that can be used to
evaluate a company's financial health and its potential value to
investors. It is often used in conjunction with other financial
ratios, such as price-to-book ratio (P/B ratio), which compares a
company's market price to its book value per share, to determine
if a stock is undervalued or overvalued.
37. FACE VALUE
• Face value, also known as par value, is the nominal or stated value of a
security, such as a bond or stock, as indicated on its legal documents. It is
the value of the security that is printed on the face of the certificate and is
used to determine the initial value of the security when it is issued.
• For bonds, face value is the amount that will be paid to the bondholder at
maturity. For stocks, face value is the initial value of the stock when it is
issued, and it has no relationship with the current market value of the stock.
38. EXAMPLE
• For example, if a company issues a bond with a face value of
₹1,000, the bondholder will receive ₹1,000 at the maturity of the
bond. If a company issues a stock with a face value of ₹10, it
means that the initial value of the stock when it was issued was
₹10 per share, but the current market value of the stock may be
different depending on the demand and supply of the stock in the
market.
39. SIGNIFICANCE
•Face value is an important concept in finance because
it is used to calculate the interest or dividend
payments on the security. In addition, it is also used
to calculate the premium or discount of the security
in the secondary market.
40. DIVIDEND YIELD
•Dividend yield is a financial ratio that measures the
percentage return that an investor earns on a stock based on
the dividend payments made by the company. It is
calculated by dividing the annual dividend per share by the
stock's current market price.
41. FORMULA
•The formula for calculating dividend yield is:
•Dividend Yield = Annual Dividend per Share /
Current Market Price per Share.
42. EXAMPLE
• For example, if a company pays an annual dividend of ₹2 per share
and its current market price is ₹50 per share, the dividend yield
would be:
• Dividend Yield = ₹2 / ₹50 = 4%
• This means that for every ₹1 invested in the stock, the investor
would receive a return of 4 cents per year in the form of dividends.
43. SIGNIFICANCE
• Dividend yield is an important metric for investors who are
looking for income-generating stocks, as it indicates the amount
of cash flow they can expect to receive from their investment. A
higher dividend yield generally indicates that a company is
paying a higher percentage of its profits to shareholders in the
form of dividends, which can be an attractive feature for
income-seeking investors.
44. EBIT
• EBIT stands for "Earnings Before Interest and Taxes" and is a financial metric that
measures a company's operating profitability before the impact of interest
payments and taxes. It is also known as operating income or operating profit.
• EBIT is calculated by subtracting a company's operating expenses, such as cost of
goods sold, salaries, rent, and depreciation, from its revenue. The resulting figure
represents the amount of money that a company earns from its core operations
before taking into account the impact of interest and taxes.
46. EXAMPLE
• For example, if a company generates ₹1 million in revenue and has
₹700,000 in operating expenses, its EBIT would be:
• EBIT = ₹1 million - ₹700,000 = ₹300,000
• This means that the company earned ₹300,000 from its core
operations before taking into account interest payments and taxes.
47. SIGNIFICANCE
• EBIT is an important metric that is used to evaluate a
company's operating profitability and efficiency. It is often
used by investors, analysts, and creditors to compare the
financial performance of different companies in the same
industry, as it provides a standardized measure of a
company's operating income.
48. EBITDA
• EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, and
Amortization." It is a financial metric that measures a company's operating
profitability without taking into account the impact of non-operating expenses such
as interest payments, taxes, depreciation, and amortization.
• EBITDA is calculated by adding a company's earnings before interest and taxes
(EBIT) to its depreciation and amortization expenses. The resulting figure
represents the amount of money that a company generates from its core operations
before taking into account non-operating expenses and the effects of capital
investments.
50. EXAMPLE
•For example, if a company has an EBIT of ₹1 million,
depreciation expenses of ₹100,000, and amortization
expenses of ₹50,000, its EBITDA would be:
•EBITDA = ₹1 million + ₹100,000 + ₹50,000 = ₹1.15
million
51. SIGNIFICANCE
• EBITDA is a useful metric for evaluating a company's operating cash flow and
financial performance, as it provides an estimate of the cash flow that a company
generates from its core operations. It is commonly used by investors, analysts, and
creditors to compare the financial performance of different companies in the same
industry, as it eliminates the effects of non-operating expenses and capital
investments. However, it's important to note that EBITDA does not include all
expenses that affect a company's bottom line, such as interest payments and taxes,
and should be used in conjunction with other financial metrics when evaluating a
company's overall financial health.