0.Formulars Flashcards
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Debt Service Coverage Ratio (DSCR)
DSCR = Net Operating Income / Total Debt Service. A DSCR above 1 indicates the project generates enough cash flow to cover debt obligations. (Lesson 9, p.4)
Accounting Rate of Return (ARR)
ARR = (Average Annual Profits / Average Investment) × 100. It measures profitability based on accounting income. (Lesson 4, p.3)
Payback Period (PBP)
PBP = Initial Investment / Annual Cash Inflows. This formula determines the time required to recover the initial investment. (Lesson 4, p.4)
Net Present Value (NPV)
NPV = Σ (Ct / (1 + K)^t) - Io, where Ct = cash flow, K = discount rate, t = time period, Io = initial investment. If NPV > 0, the project is viable. (Lesson 4, p.5)
Internal Rate of Return (IRR)
IRR is the discount rate at which NPV = 0. It represents the project’s yield and should be higher than the cost of capital. (Lesson 4, p.6)
Profitability Index (PI)
PI = Present Value of Cash Inflows / Initial Investment. If PI > 1, the project is profitable. (Lesson 4, p.7)
Loan Life Coverage Ratio (LLCR)
LLCR = Net Present Value of Project Cash Flow / Outstanding Debt Balance. Used to assess long-term debt serviceability. (Lesson 6, p.5)
Project Life Coverage Ratio (PLCR)
PLCR = Net Present Value of Project Cash Flow Over Entire Project Life / Outstanding Debt Balance. A higher PLCR indicates better financial health. (Lesson 6, p.5)
Debt-to-Equity Ratio
Debt-to-Equity Ratio = Total Debt / Total Equity. This ratio measures financial leverage, typically capped at 70:30 in project finance. (Lesson 6, p.5)
Sensitivity Analysis
Sensitivity Analysis assesses how changes in variables (e.g., interest rates, inflation) affect project outcomes. It helps in risk identification and mitigation. (Lesson 9, p.4)
Monte Carlo Simulation
Monte Carlo simulation uses probability distributions to model uncertainties and predict financial risks in project finance. (Lesson 5, p.5)
Value-at-Risk (VaR)
VaR calculates the maximum potential loss over a given period at a certain confidence level, helping quantify financial risks. (Lesson 5, p.5)
Scenario Analysis
Scenario Analysis evaluates project viability under different economic conditions, including best-case, worst-case, and base-case scenarios. (Lesson 5, p.5)
Discounted Cash Flow (DCF)
DCF = Σ (Future Cash Flows / (1 + Discount Rate)^Time Period). Used to estimate project valuation by adjusting future earnings to present value. (Lesson 9, p.5)
