Guys
any way to remember ratio analysis formulas for long time.
Its difficult to remember them after some time :sneaky:
If u remembr in groups it is quite easy 😃
If u remembr in groups it is quite easy 😃
Correction.
IRR itself offers one rate - the discount rate that makes NPV zero.
NPV uses one discount rate (generally the opportunity cost of capital).
IRR uses a single discount rate typically to analyze the project
NPV uses more than one discount rate in its calculations
This question has very complex answers... however
Few Important points (some already pointed out)
- One may consider NPV as addition to shareholder value and IRR as rate earned internally by the project (loosely).
- The above is not strictly true since IRR assumes that interim cash flows are reinvested at IRR again (which might be unreasonable). Also in mixed investments, projects may be borrowing and investing (which IRR cannot distinguish between) and hence IRR may not be considered as purely "internal" rate.
- For pure, simple investments (ones with initial outflow and inflows subsequently). NPV and IRR give similar indications of investment choice.
- As a simple rule, for other type of investments- use NPV.
- For choosing between projects, IRR assumes that reinvestment is at equal to or above the Fisherian rate. Hence, The conflict between NPV and IRR vanishes if the reinvestment is possible above Fisherian rate.
- Advanced: For non-simple and mixed investments - we need to refer to resolution of life disparity / time disparity / size disparity of choice of projects. This may be accomplished by opting for using methods like Modified IRR, Return on Invested Capital etc.
- Practically: Usage of Linear programming and Goal programming models is done to arrive at list / rank of projects when projects are multiple and the capital is limited.
All said and done, Board of Directors do not understand NPV so easily. IRR is more intuitive to them. But they also insist on share-accretive quality. Hence, be careful!
Simple Answer
- In case of evaluation of single project - use anything!
- In case of choice between multiple projects - Use any method which your boss / client / board wants so long as there is no conflict between NPV and IRR. If there is a conflict, use NPV (and explain it). If possible, use any one advanced technique.
Cool!
Can we then conclude that in case of Non conventional investments NPV is better and in Conventional investments IRR = NPV?
Yaar koi solid anser batao NPV vs IRR ka :nono:
Correction.
IRR itself offers one rate - the discount rate that makes NPV zero.
NPV uses one discount rate (generally the opportunity cost of capital).
yes i agree with the first statement .. IRR is the rate at which NPV is zero
Though i agree with the statement , which is what we generally use but i think there are situations where multiple discount rates are used ..
2. In NPV multiple discount rates can be used for multiple cashflows. Each year cashflows can be discounted with a different Rates which is not possibke in IRR.
http://www.investopedia.com/ask/answers/05/irrvsnpvcapitalbudgeting.asp#axzz1yrNeVZXH
Some more differences i found
Difference between IRR and NPV
- While both the IRR and NPV try to do the same thing for a company, there are subtle differences between the two that are as follows.
- While NPV is expressed in terms of a value in units of a currency, IRR is a rate that is expressed in percentage which tells how much a company can expect to get in percentage terms from a project down the years.
- NPV takes into account additional wealth while IRR does not calculate additional wealth
- If cash flows are changing, IRR method cannot be used while NPV can be used and hence it is preferred in such cases
- While IRR gives same predictions, NPV method generates different results in cases where different discount rates are applicable.
- Business managers are more comfortable with the concept of IRR whereas for general public, NPV is better for grasping.
PS: Do correct me i am wrong 😃
yes i agree with the first statement .. IRR is the rate at which NPV is zero
Though i agree with the statement , which is what we generally use but i think there are situations where multiple discount rates are used ..
There are indeed scenarios in which multiple IRRs are possible especially when cash flows during the project lifetime is negative (i.e. the project operates at a loss or the company needs to contribute more capital)
Whats dupont control chart 
iwantgovtjob SaysWhats dupont control chart
Chk this out it will give u a basic idea
Du-Pont Control Chart
Then check this for a detailed understanding
TheManageMentor - Finance - DU Pont Analysis
If u have any more queries on it then come back with them
Advice - Do not take investopedia or wikipedia as the definite answer to "everything". Let it be a guide. For detailed study, go back to books. Please don't mind - I just want to encourage you to wrest the theory :)
Let's think for a minute - Why would a Project Appraiser need multiple NPV or multiple discount rates?
He is required to come up with a "magical figure" to justify whether to invest in the project or to decide for an alternate project. He is not required to do a valuation - where he comes up with a range of "values". Hence, he always uses one discount rate. This rate is generally the Opportunity WACC.
So where do multiple discount rates come in? - they do in the case that he is valuing multiple projects in different scenarios or that the marginal cost of capital is expected to change.
So, all we are trying to say is that multiple discount rates "can" be used for different situations - not that they "are" used for the same project.
yes i agree with the first statement .. IRR is the rate at which NPV is zero
Though i agree with the statement , which is what we generally use but i think there are situations where multiple discount rates are used ..
Which is a better measure for capital budgeting, IRR or NPV?
Hope everyone is aware that this can be derived from Descartes' rule of signs.
If you have Cash Flows like
-++-++++
The maximum number of positive IRRs you can get is 3, since there are three sign changes from - to + or + to -
The above is called a non-simple investment.
harry4u9 SaysThere are indeed scenarios in which multiple IRRs are possible especially when cash flows during the project lifetime is negative (i.e. the project operates at a loss or the company needs to contribute more capital)
So where do multiple discount rates come in? - they do in the case that he is valuing multiple projects in different scenarios or that the marginal cost of capital is expected to change.
So, all we are trying to say is that multiple discount rates "can" be used for different situations - not that they "are" used for the same project.
I dont mind at all , you have so much knowledge and we are all here to learn :)
Let me just clear one thing , we dont make any changes to the cost of capital , no matter how we think the market will change in terms of risk or cost within a certain time period ..
I have also throughout the two years used the same cost of capital for all time periods but with the assumption that market conditions wont change wrt to future cash flows 😃
Cost of capital (or WACC) may not be assumed to change (arguably), but weighted marginal cost of capital (WMCC) would generally have a step-up schedule. Meaning that if you are thinking of implementing new projects and have multiple sources of financing, you would need to generate breaking points to arrive at multiple cost of capital at different levels of financing.
Now, depending on the project size and the financing level, you would arrive at a single figure of WMCC from this graph, and use that for calculations.
I have not even entered the realm of risk / risk analysis, which introduces so many other dimensions to this discussion.
I dont mind at all , you have so much knowledge and we are all here to learn :)
Let me just clear one thing , we dont make any changes to the cost of capital , no matter how we think the market will change in terms of risk or cost within a certain time period ..
I have also throughout the two years used the same cost of capital for all time periods but with the assumption that market conditions wont change wrt to future cash flows :)
How to memorise Variance analysis forumulas 
Chk this out it will give u a basic idea
Du-Pont Control Chart
Then check this for a detailed understanding
TheManageMentor - Finance - DU Pont Analysis
If u have any more queries on it then come back with them
Can u summarize importance of Du-pont control
also plz post link to understand Funds flow statement preparation in a video
Where can i download paid videos without paying
of Capital strucutre and dividend polci by- MBABULLSHIT :)
he rocks 😃
Where can i download paid videos without paying
of Capital strucutre and dividend polci by- MBABULLSHIT :)
he rocks :)
i dont know what exactly you want to download but if you need some video lectures then search in torrents, youtube, Khan Academy and Aswath Damodaran | Academic Earth. you may find some relevant material.
hey i heard that Investment banks do visit IIM shillong but do they recruits for the front-desk. do they only recruit for the middle and back desk(KPO) from less colourful MBA colleges
wud b helpful
Hi
is it better to value WACC on book value or market value 😉
i got 95 in accounts in 12th but i hate accounts....
it was all rattafication....
should i go for finance or marketing???
Somebody throw light on
Return on Owners equity Vs Return On equity Vs ROI 
Somebody throw light on
Return on Owners equity Vs Return On equity Vs ROI
Return on owners equity & return on equity may mean the same the thing when it comes to a corporation, i.e., it measures the efficiency at which the profit(in this case Net income after Tax) is being generated per unit of owner's contribution to the company.
Return on Investment is a very broad term as it measures the efficiency at which the profit is being generated per unit of "Investment". Investment can include debt+equity/debt.
Hope it clarifies...