Strategies

Yardsticks New Investment

Capital Budgeting
Types of investments
Present value Investment Base Emphasis and deployment
Rate of Return
Disinvestments

Price Volume Operations

Utilisation of assets
Market selection
Operating ratios Variable Competitive position
Contribution
costs Pricing strategy
margin
Activity Analysis Cost effectiveness
Operating Leverage
Comparative data Fixed costs Liquidity

Dividends Operating Interest

Profits
Earnings per
Financing
share Disposition of earnings
Cash flow per Retained Dividends
share Earnings
Payout ratios Interest
Interest coverage Retention

Debt Equity Long Term Capital structure

Debt Service Equity Types of equity
Cost of capital Debt
Shareholder value Types of debt
Financial leverage
Funding Risk reward trade
Potential off
 Capital Budgeting

Time value of Money Investment Decision Replacement Analysis

Future & Present Cash Flow Principle Abandonment
Value Tax Adjustment Purchasing
Single cash flow Inflation Adjustment Replacement
Uneven cash flow Incremental Principle Aggregate cash flow
Annuity Long term funds & method
Perpetuity Reward Exclusion Incremental cash flow
Growing perpetuity Taxes and Losses method
Compounding Capital gains
Cost reduction
Other cash flows

Inflation and cash flow budgeting Capital Rationing

Cash Flow Single period divisible &
Discount rate indivisible projects
Present value Multi period divisible &
o Inflation rate indivisible projects
o Depreciation

Adjusted NPV
Relevance of side effects
Methods of computing APV
APV & hurdle rates
 Risk Analysis in capital budgeting

Risk and Uncertainty

Probabilities Certainty Equivalent Factor

Probability distribution Meaning
Expected value Method of computation
Computing EV Limitations of CEF
RADR and CEF

Standard Deviation RISK ADJUSTED DISCOUNT RATE

Computing SD Risk range schedule
Decision making Limitations
Fisher model

SENSITIVITY ANALYSIS
Method of computation
Decision rule
Sensitivity for non –annuity cash flows
Limitations

DECISION TREE JOINT PROBABILITY

Meaning Meaning
Rules for drawing Computation Methodology
Evaluation

SIMULATION
Meaning
Methodology
Advantages
Limitations
Simulation Vs Sensitivity Analysis

MILLER’S Model
Independent cash flows
Perfectly correlated cash flows

Z VALUES
Implications and computation

REAL OPTIONS IN CAPITAL BUDGETING

Computation of value and implications
 Mutual Fund

Meaning Structure Advantages Disadvantages Classification

Schemes of
Mutual Funds

NAV & Costs Evaluation of Performance of

Mark to Market MF Returns
Expense Ratio Critical Areas

Evaluation Model
Sharpe
Taylor
Jensen’s Alpha
Morning Star
Fama’s net selectivity

Selection Criteria Timing the exit out of a MF

Past Performance Performance below
Timing market consistently
Size and age of fund Performing below peer
Expense ratio group consistently
PE ratio Objective of fund changes
Portfolio Turnover or your own objective

Regulatory Framework
SEBI
AMFI
 Portfolio Management

Return single security

Arithmetic Mean, Holding period return
Annual simple return and compounded annual growth

Risk single security

Meaning & Method of measuring risk
Standard deviation – Measure of total risk
Acceptable return

Portfolio of Securities
Return of a portfolio
Risk of a portfolio
o Covariance between securities
o Correlation between securities
Measuring risk of a portfolio with 2 securities
Measuring risk of a portfolio with > 2 securities
Risk reduction
Dominance of one security over another in a portfolio
Diversifiable and non diversifiable risk
Capital market line
Beta as a measure of non diversifiable risk
Beta of a portfolio
CML and SML

CAPM
Overvalued and undervalued stocks

Alpha
Excess Return

Other Models
Factor Model (APT method)
Market Model