Chapter 4 - Investment Appraisal Flashcards Preview

CWM 1 - Financial Markets > Chapter 4 - Investment Appraisal > Flashcards

Flashcards in Chapter 4 - Investment Appraisal Deck (44)
Loading flashcards...
1

Interest rate investor demands

Risk free rate + Inflation premium + default risk + liquidity premium + maturity premium

2

Future Value

Present Value * (1+R)n

3

Present Value

Future Value/ (1+R)n

4

Future Value - Continuous Compounding

PeRT: Present^e(decimalised interest rate * years)

5

Present Value - Continuous Compounding

Future^e-(decimalised interest rate * years)

6

APR

(1+ (nominal/number of payments))^n -1

7

AER - more than one compounding period per year

(1+ (nominal/number of payments))^n -1

8

AER - less than one compounding period per year

(1+ (periodic rate)^(1-number of years))-1

9

Net present value

NPV = 0
NPV = Present value of inflows - present value of outflows

10

Approximate IRR

2/3 * (profit from project/initial outlay)

11

Gordons Growth Model

Discounted Cash Flows

(Present Div * (1+rate of growth))/(investors required rate - dividend growth rate)

12

Standard Deviation

σ = (Σ(X-X̄)^2)/n

Sigma when whole data set
Sample when sample: divide by n-1

13

Stats mode on calculator

MODE 2 then 1

14

Mean of table on calculator

SHIFT 1, 4, 2

15

Standard deviation on calculator - sigma

SHIFT 1, 4, 3

16

Standard deviation on calculator - sample

SHIFT 1, 4, 4

17

Information Ratio

Information Ratio = Extra Return/Extra RIsk

Information ratio = alpha/ standard deviation of excess return

The higher the information ratio the better

18

Gross Profit Margin

(Gross profit/Revenue) *100

19

Operating Profit Margin

(Operating Profit/Revenue) * 100

20

Gross Profit

= Revenue - Cost of sales

21

ROCE

= (Operating Profit/Capital Employed) * 100

or operating profit margin * asset turnover

Capital employed= Total Assets - Current Liabilities

22

Asset Turnover

= Revenue / Capital Employed

23

Operational Gearing Ratio

= ((Revenue-variable costs) /Profit)*100

24

Current Ratio

= Current Assets/ Current Liabilities

eg.
Short term assets/Short term liabilities

25

Quick Ratio

= (Current Asset - Inventory)/Current Liabilities

26

Inventory Turnover

= Cost of Goods sold/ Inventory

27

Inventory Days

= (Inventory/ Cost of goods sold)*365

28

Receivables Collection Preiod

= (Trade Receivables/revenue)*365

29

Debt to Equity

= ((Interest bearing debt + preference share capital)/Equity share holder funds)*100

30

Net Debt to Equity

= (Debt-Cash)/Equity