Discount Rate

What is a ‘Discount Rate’? The term discount rate is often used to refer to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows. The discount rate in DCF analysis takes into account not just the time value of money, but also the risk or uncertainty of future cash flows; the greater […]

Present Value – PV

Present value (PV) is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is […]

A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost […]

Net Present Value – NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of a projected investment or project. The following is the formula for calculating NPV: where Ct = net cash inflow during the period t Co = total initial investment costs […]

Trend Analysis

Trend analysis involves the collection of information from multiple time periods and plotting the information on a horizontal line for further review. The intent of this analysis is to spot actionable patterns in the presented information. In business, trend analysis is typically used in two ways, which are as follows: Revenue and cost analysis. Revenue […]

Residual Value (RV)

Residual value is the disposal value of an asset, that is, it represents the amount of value that the owner of an asset can expect to eventually obtain when the asset is disposed of. The key issue with the residual value concept is how to estimate the eventual amount that an owner will obtain from an […]