Cash Flow Computations in Project Management

Financial appraisal or evaluation is a must for every  project even though the outcome may not be the decision criteria for  establishing the project.  Financial appraisal of a project deals with cash flows. Cash, which goes  out of the firm, is known as cash outflow. Typically an investment in a  project is an out flow. The cash that is received in future from the project  is an inflow. We should remember that cash is different from income.  Cash flow and not income flow is central to project evaluation. The  results of an evaluation of a project are only as good as the accuracy of  our estimation of cash flows. The following illustrates computation of  cash outflow. Cash outflow on installation of a machine includes; Cost of new equipment Labor  and erection costs Maintenance cost While computing such outflows we should not include interest costs on debt employed.  If the cost Continue reading

Market Timing for Investors

persoMarket Timing is a top down view of the stock market and its prospects.  Market Timing is an approach that attempts to determine when to be in the market, when to be out of the market and when to short (bet on a price decline by borrowing stock and selling with the hope to buy it back at a cheaper price and repay at cheaper prices). Market timing includes the following four components. Trends of interest rates: The future behavior of interest rates, i.e., the tightening or easing bias of the Central Bank. Interest rates are critical to market values for three reasons. Stocks are basically the present value of future earnings. An investor invests his money in an expectation of certain rate of return. The higher the general level of risk-free rates, the greater the expected rate of return and the lower the present value of future returns. Additionally, Continue reading

Forms of Business Organisations

A business organization can be formed with certain properties and specific characteristics. Since business organization is an association of persons, the manner of forming and the objectives of the association decide the form of organization. Individuals form an organization because they are unable to achieve their goals individually. An organization provides opportunities to exploit the existing potential of men and materials. It explores the future possibilities of exploiting human and physical resources.   Individuals interested in getting benefits out of the present and potential resources form an association, better known as an organization, to attain the group goals. The dynamics of individuals and the organization are used to gain maximum benefits. They work in a particular manner to obtain the objectives. They can form formal or informal organizations. Formal Organizations A formal organization develops in a well-defined system and has specific properties. It bears definite measures of authority, responsibility, obligation Continue reading

An Introduction to Hedge Funds

What are Hedge Funds? A hedge fund is a type of private placement investment that is managed by investment management firms and is made up of sophisticated or institutional investors. The fundamental reason why various individuals participate in hedge funds is to protect themselves from losses in other assets. Managers of investment pools employ a variety of tactics, including leverage and esoteric asset trading, in an attempt to outperform the markets in terms of returns. Hedge funds invest in portfolios built with high risk management strategies in order to produce large returns even in the worst-case scenarios. Hedge funds displays multiple characteristics which are discussed below: Hedge funds are financial instruments which requires investment of large amount of capital and thus is not available to general public just as mutual funds are. Hedge funds are not regulated like mutual funds are which makes them highly risky asset acting as the Continue reading

Relationship Between Finance and Accounting

Finance can be defined as the art and science of managing money. Virtually all individuals and organization earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, business and governments. Finance, in another word, can be defined as the management of the flows of money through an organization, whether it be a corporation, school, bank, or government agency. Finance concerns itself with the actual flows of money as well as any claims against money. Finance is regarded as the life-blood of the business unit. This  function involves planning, procurement and effective utilization of the funds of the business. Accounting is the methodical or precise recording, reporting, and assessment of financial deals and transactions of a business. Accounting also involves the preparation of statements or declarations concerning assets, liabilities, and outcomes of Continue reading

Managers and Selection of Proper Forecasting Technique

The increasing complexities of the business environment together with the changing demands and expectations, implies that every organization needs to know the future values of their key decision variables. In virtually every decision they make, executives today consider some kind of forecast. In any organization, managers play a significant role in implementing Forecasting techniques. Forecasting takes the historical data and project them into the future to predict the occurrence of uncertain events. Forecasting serves as a self-assessment tool for the company. To handle the increasing variety and complexity of managerial forecasting problems, many forecasting techniques have been developed in recent years. Each has its special use, and care must be taken to select the correct technique for a particular application. The manager as the forecaster has a role to play in technique selection; and the better he understands the range of forecasting possibilities, the more likely it is that a Continue reading