Financial Ratios

Question 1

Define ROI

Answer 1

ROI - is the ratio of the net profit to the total investment of a project.

Question 2

Define IRR

Answer 2

IRR - is nothing but the percentage return you are going to get from your project. It is the discount rate at which the NPV becomes Zero. Or it’s the discount rate that makes the NPV of a project equals to Zero.

Question 3

Define Profitability Index

Answer 3

Profitability index
Profitability index shows how much profit a project generates for each dollar invested.

Question 4

Define Payback Period

Answer 4

Payback period
Payback period shows the breakeven point at which you can recover the initial investment.

Question 5

Define NPV

Answer 5

(NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.