Financial modelling refers to the process business organizations construct a financial representations of selected or all aspects of their organisation, A good financial model give the user a good and clear picture of what is going on in the company or organisation, it acts as a handy instrument that aids possibilities and risks to be assessed in a cost-effective way against various assumptions, it also predicts solutions in approximating financial returns hence helping businesses make effective decisions. It could be constructed on a paper, a spread sheet or using a software, but the important thing is the logic or concept behind it, it usually combines the balance sheet, profit and loss statement and the cash flow to highlight the critical values for decision making. (Ready Ratios, 2011)
There three modelling methods of assessing financial risks considered in this work
- Return On Capital Employed (ROCE)
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
Return On Capital Employed (ROCE) - this is a traditional approach, it is expressed in percentage. It is the percentage ratio of the accounting profits made by an investment to the capital outlay. It makes its evaluation based on profitability and gives an idea of an investments profitability in percentage but other than the ambiguous nature of the ROCE concept and its inability to compare two alternative of different financial size, it fails to consider cash flow and the time value of money. (Steve lumby and Chris jones, 2001)
ROCE= pre-tax profit/Capital Employed
Net Present Value – NPV is a technique where cash inflows expected in the future years are discounted back to their present value. it’s the difference from the worth in the current of a sum of money to some...
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...eting tool that show the differences between the present value of revenues and the present value of expenses. The project can be profitable when the net present value is positive. In other words, the present value of revenues is greater than the present value of expenses. Profitability index is another tool for evaluating investment projects, which is the ratio of the PV of benefits on the PV of costs. A project can be beneficial if the profitability index is greater than 1. Also, it has the same idea as NPV that In other words, the present value of benefits is greater than the present value of costs. However, these two methods (NPV and Profitability Index) have been used to evaluate the proposal of implementing EHR.
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Return on capital employed (ROCE) expresses a company’s profit and displayed as a percentage of the amount of capital invested in the company. ROCE interprets “capital employed” as the total amount of money invested in the company in the long term, regardless of whether that money has been supplied by shareholders or lenders. This amount will compared with the return achieved on that capital. The results were shown that Wm Morrison Supermarkets are higher than Tesco by 4.55 per cent.
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
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Present theoretical arguments for the choice of net present value as the best method of investment appraisal;
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Every human being in this world is unique and each individual has different ways in which they learn. Learning styles have been formulated over the years to help us recognize the way we approach learning and methods we use to gain knowledge. It is an individual's distinctive approach to learning based on strengths, weaknesses, and preference with a mixture of various styles. In this essay, we will take a look at different learning styles and how they can be implemented and integrated in the accounting profession.
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The Net Present Value (NPV) is a Discounted Cash Flow (DCF) technique that relies on the concept of opportunity cost to place a value on cash inflows arising from capital investment, where opportunity cost is the "calculation of what is sacrificed or foregone as a result of a particular decision".
Block, S. B., & Hirt, G. A. (2005). Foundations of financial management. (11th ed.). New York: McGraw-Hill.
Moreover, the interdisciplinary curriculums designed for students with non-accounting background suit me fine. As a Chinese student majored in electronic commerce and minored in accounting, I hope to take advantage of my disciplinary perspective, dual language ability, and global vision, to understand how business and accounting interacts.