calculations on investment appraisal Flashcards
gearing ratio
non-current liabilities (loan capital share capital and debtors - when the business is temporarily at a loss for 12 months or over) / capital employed (total equity) x 100 = the higher the gearing ratio, the higher the risk of investing into the business as it is more dependent on borrowed money.
ROCE (return of capital employed)
operating profit / capital employed
ARR (average rate of return)
average annual return / initial outlay x 100
annual labour turnover rate
no. of people who left within the year / total workforce x 100
labour productivity
no. hours worked in a week / units produced in a week x 100
3 month moving average
month in question +
TEV (total expected value)
estimated value of risk x probability of risk = x
estimated value of reward x probability of reward = y
x + y = total expected value
NG (net gain)
TEV - initial outlay = higher net gain is the better option
3 year moving total
current year of sales + previous 2 years of sales
3 year moving average
current year + previous year + next year / 3
payback period
count for the years when the cash flow does
not exceed the cumulative cash flow.
cumulative cash flow for the previous year / cash flow for the present year x 12 = y + previous years that didn’t make a profit
NPV (net present value)
net cash flow x discount factor
add all present values together to get the NPV
a positive value is good and healthy
working capital
current assets - current liabilities
current ratio
current assets / current liabilities x 100
acid test ratio
current assets ( - inventories) / current liabilities x 100
