Bailout Payback Period

Introduction: [vc_empty_space height="10px"] The bailout payback period considers the time period within which cumulative cash flows are generated by the project after adding cashflows generation from the sale of equipment. [vc_empty_space height="10px"] Bailout cash flows are the estimates of cash flows inflows that shall arise on sale of equipment at the end of the project. [vc_empty_space height="10px"] The cash inflows from the sale of equipment reduces / falls every year. Hence, the disposal amount received in year 4 for example shall be lower than amount received in year 3. [vc_empty_space height="20px"] School Supplies Decision Rule: [vc_empty_space height="10px"] A maximum payback period of the project is determined by the company. [vc_empty_space height="10px"] If expected...

15 January 2021

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Accounting Rate Of Return (ARR)

Posted by Ali Murtaza

in All Articles, Financial Management

Accounting Rate of Return (ARR) Accounting rate of return (ARR) is the return on investment based on specific project. It is calculated by dividing accounting profit after depreciation but before interest and tax (PBIT) with average capital invested. Formula of ARR Average Capital Employed Average capital employed is calculated by taking average of cost of asset and residual value of asset and then working capital is added. Formula of Average Capital Employed Example: A company is considering a project which requires investment on the machinery amounted to Rs.150,000. The machinery life is four years having scrap value of Rs.30,000. Additional capital requirement for the project is Rs.20,000. The...

14 January 2021

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Payback Period

Posted by Ali Murtaza

in All Articles, Financial Management

Introduction: The Payback Period defines the length of time before which the amount invested in the project shall be recovered / received. It is measured in period / time. It is based on cash flows and not on profit. Decision Rule: If expected payback period from the project is within the period determined by the company, the project is accepted and vice versa. For more than one projects, the quickest payback period achieving project is selected. [mkd_blockquote text="Time value of money is ignored in payback period and total return on the investment is also not considered." title_tag="h2" width="" border_color=""] Payback Period with even and uneven annual...

27 December 2020

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Corporate Briefing Session (CBS)

Posted by Ali Murtaza

in All Articles, Stock Exchange

The objective of corporate briefing session is to provide suitable and equitable flow of information to shareholders, market analysts and investors. Mandatory requirement for all listed companies: As per PSX Notices and SECP directives, it is mandatory to hold one Corporate Briefing Session (CBS) during the whole financial year by all listed companies including Modarbas and Close End Mutual Funds. What shall be in corporate briefing session (CBS)? Suggested content for CBS shall be; Company Brief: Brief description of company business. Strategic / Operational Developments: Strategic Plans and developments, upcoming projects, forecasts. Financial Details: These include balance sheet, profit & loss, cash flow statement and notes to...

27 December 2020

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Discounted Payback Period

Posted by Ali Murtaza

in All Articles, Financial Management

Introduction: The discounted payback period is calculated by the same way as payback period the only difference is that cash flows are converted into present value. It is the period before which the Present Value of cumulative cash flow becomes zero. Example: Discounted Payback period with even annual cash flow (constant cashflow) A company is considering a project with initial investment of Rs.700,000. The constant cash flows to be received from the project is Rs.200,000 for a period of 6 years. Discount Rate is 13%. Answer: The discounted payback period with even annual cash flow shall be calculated as follows: Year Cash Flow (Rs) Discount Factor (13%) PV of...