Methods of Calculating Depreciation: There are several possible methods of calculating depreciation: 1.

Straight line method 2 Reducing balance method 3 Sum of the digits method Sum-of-years' digits method: Sum-of-years' digits is a depreciation method that results in a more accelerated write-off than straight line, but less than declining-balance method. Under this method annual depreciation is determined by multiplying the Depreciable Cost by a schedule of fractions. Depreciable cost = original cost salvage value Book value = original cost accumulated depreciation Example: If an asset has original cost of $1000, a useful life of 5 years and a salvage value of $100, compute its depreciation schedule. First, determine years' digits. Since the asset has useful life of 5 years, the years' digits are: 5, 4, 3, 2, and 1. Next, calculate the sum of the digits. 5+4+3+2+1=15 The sum of the digits can also be determined by using the formula (n2+n)/2 where n is equal to the useful life of the asset. The example would be shown as (52+5)/2=15 Depreciation rates are as follows: 5/15 for the 1st year, 4/15 for the 2nd year, 3/15 for the 3rd year, 2/15 for the 4th year, and 1/15 for the 5th year

Investopedia explains Price-Earnings Ratio - P/E Ratio

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. Investopedia explains Earnings per Share EPS Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. Investopedia explains Capital Budgeting Ideally, businesses should pursue all projects and opportunities that enhance shareholder value. However, because the amount of capital available at any given time for new projects is limited, management needs to use capital budgeting techniques to determine which projects will yield the most return over an applicable period of time. Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period.

What Does Modified Internal Rate Of Return - MIRR Mean? While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that postive cash flows are reinvested at the firm's cost of capital, and the intial outlays are financed at the firm's financing cost. Therefore, MIRR more accurately reflects the cost and profitability of a project.

NPV vs DCF NPV and DCF are terms that are related to investments. NPV means Net Present Value and DCF means Discounted Clash Flow. NPV and DCF are closely connected that it is difficult to make out a differentiation between the two. Net Present Value is really a component of Discounted Clash Flow, which makes it more difficult to make out the differences. The NPV is a central tool used in DCF. Fist of all let us discuss NPV. The NPV represents the present value of cash flow. The Net Present Value is generally used for comparing both the internal and the external investments of a company. The NPV has its major role as it could be difficult comparing different investments, especially when there are different values and different profits payable at various times. The Net Present Value can also be called as the difference between the present values of cash inflow and cash outflow. In simple words, the Net Present Value compares the value of money today to the value of that money in the future. Investors always look for positive NPVs. The Discounted Cash Flow helps in making an analysis of an investment and to determine how valuable it would be in the future. The Discounted Cash Flow helps an investor to calculate the returns that would be got for the investments and how long it would take for getting the returns.