Prasanna Gangakhedkar

Risk-Free Rate of Return Finance and investment theory consider the Risk-Free Rate of Return to be a key topic. In theory, it shows what you’d receive if you invested without risk of losing money. Therefore, an investor who backs risk-free investments expects to receive exactly what was projected without any risk that the investment will not be repaid. Concept and Importance Because every other investment is compared to it, the risk-free rate forms the key reference point for evaluation. People usually look for earnings that beat the risk-free return when they are taking on credit, market or liquidity risks. A risk premium is needed to handle the unpredictability found in financial markets. As a result, the risk-free rate is the lowest return an investor wants for their funds, since it only measures the time, their money is not available. Because the risk-free rate is the basis of both CAPM and other asset valuation models, it is important for setting capital costs, discount r...

  Making Investment Decisions: Issuing a ‘Buy’ or ‘Sell’ Rating Investment represents a key part of financial transactions that helps influence where capital is used across the economy. Guiding which stock to invest in, financial analysts and equity research professionals use a rating system often indicated as ‘Buy’, ‘Sell’ or ‘Hold’. Experts don’t just guess at these ratings; they are the result of careful examination, simulations of future events and solid forecasts. Figuring out how these ratings work is necessary for both investors and professionals using them to decide on a new investment.   What Equity Analysts Do in Determining Investment Ratings Investment banks, brokerage firms and small research companies hire equity research analysts, whose main job is to issue ‘Buy’, ‘Sell’ or ‘Hold’ recommendations. Their responsibilities consist of thoroughly studying companies, industries and economic movements. They look at how the company’s stock has done and what it c...

  How to Calculate FCFF and FCFE When it comes to both corporate finance and investment analysis, two measures of cash flow that matter a great deal are Free Cash Flow to the Firm (FCFF) and Free Cash Flow to Equity (FCFE). These measurements help you see a company’s ability to produce cash after covering its spending needs for capital and working capital. Also, they are part of important models such as DCF which is used in valuation. Analysts, investors and professionals in finance need to understand how to look at and use FCFF and FCFE. Exploring What Free Cash Flow Is Free Cash Flow gives us an idea of a company’s health by showing the cash remaining after capital spending. It measures a company’s capacity to produce cash that can either be distributed or put back into the business. FCF helps show whether the company is financially sound, runs smoothly and can provide money to investors. Basic free cash flow only gives you a general impression, but FCFF and FCFE give you m...

Calculating Net Present Value (NPV) to Determine Company Value   NPV or Net Present Value, is a key tool and popular method for figuring out the value of a company or investment project. Under the principle, a rupee right now is considered better than a rupee you will receive only later. Using the process mentioned above is very important in corporate finance for evaluating capital projects, analyzing investments and dealing with mergers and acquisitions. This method makes it easier to summarize if a project or investment will provide value to the firm.   Learning About the NPV Concept Net Present Value is the difference between the present value of all cash you receive and the present value of all the cash you use during a given period. For company valuation, it amounts to the present value of all anticipated future cash the business will create, adjusted downward according to the risk attached to those cash flows. To calculate NPV, add up all the cash flows you...

Zero-Based Budgeting vs. Incremental Budgeting All organisations rely on budgeting as an important area in managing their finances. It deals with assigning available resources to different sections and projects to achieve set objectives. In corporate finance, two popular budgeting options are ZBB and Incremental Budgeting. Different methods in budgeting come with pros and cons, so it’s necessary to recognize their differences to make the right choice. Zero-Based Budgeting: Considering the Budget from Scratch Each time you use Zero-Based Budgeting, the process begins as if there were no prior budget. In other words, budget details from previous years are not reused. All expenses should be verified against current needs, no matter what was planned earlier for the school year. All areas of the business are examined and spending is decided for the near future, while discontinuing actions that are not useful anymore. Under this way of planning, managers must go through each expense ...