Quantitative Skills Flashcards
Present Value
A financial concept that states an amount of money today is worth more than that same amount in the future. Eg: cash flow £20000 * discount factor 0.9 = present value £18000
Calculating present value
Cash flow multiplied by discount factor
What is a discount factor
It is a weighing factor used to find the present value of future cash flows. Basically the number you use to calculate how much your money will be worth some time from now, for example one year.
Net Present Value
Calculates the monetary value now of a project’s future cash flows
Calculating NPV
Add together all the Present Values of Future Cash Flows
What are index numbers
Used to report key percentage changes within an economy. Their purpose is to show percentqge changes compared with a base number. Can be used to work backwards.
Calculating index number
(Current Number divided by Base Number) multiplied by 100
Calculating Current Market Size using index numbers
Base Market Size multiplied by (Current Index divided by Base Index)
Decision Tree
A mathematical model used to help managers make decisions when faced with choices.
How does a decision tree work?
A decision tree uses estimates and probabilities to calculate likely outcomes. Calculating these estimates helps to decide whether the net gain from a decision is worthwhile.
What is probability?
The percentage chance of possibility that an event will occur? Ranges between 1 (100%) and 0. If all the outcomes of an event are considered, the total probability must add up to 1.
What is Expected Value?
The financial value of an outcome calculated by multiplying the financial result by its probability.
What is Net Gain?
The value to be gained from taking a decision. Calculated by adding together the expected value of each outcome and deducting the costs associated with the decision.
How to calculate total expected value
Probability A + Probability B value
Eg:
(0.7250000)+(0.350000)=(175000+15000)=190000
How to calculate net gain
Net gain = total expected value - cost
Eg: 190000-60000=£130000
Ratios
Show the relationship between two values. Ratio analysis involves the comparison of financial data to gain insights into business performance.
Return on Capital Employed
Operating Profit/Capital Employed
Liquidity ratios
Assess whether a business has sufficient cash or equivalent current assets to be able to pay its debts as they fall due.
Current ratio
Current Assets divided by Current Liabilities
Trade receivables (debtors)
Amounts owed to a business by customers
Trade Payables (Creditors)
Amounts owed by a business to suppliers & others
Calculating receivables days ratio
Trade Receivables divided by Annual Sales Revenue * 365
Inventory turnover
How many times you turn your inventory over in a year
Mean
Add up all the values, divide by how many there are.
