Question

Identify two (2) pieces of information not included in the principle financial statements (balance sheet, income statements, financial ratios) and legal actions being taken against the company, that you think would be important to someone considering whether to invest in your company. Explain your reasons for believing that this information would be important in making an investment decision.

Answer 1

NET PRESENT VALUE

An organization need to take many decisions for the expansion of business and investment. The organization will take the help of Net Present Value method and decide accordingly.

Net present value is used in Capital budgeting to analyse profitability of a project or investment.

It is calculated by taking the difference between the present value of cash inflows and present value of cash outflows over a period of time.

Net present value is nothing but net off of the present value of cash inflows and outflows by discounting the flows at a specified rate.

NPV takes into consideration the time value of money. The time value of money simply means that a rupee today is of more value today than it will be tomorrow.

PROFIT MARGIN

Profit margin is most analysed numbers a company can produce. It is important to understand that profit margin is not a measure of how much cash a company earned during a given period. Profit margin includes noncash expenses, such as depreciation. It is also important to understand that changes in accounting methods can highly influence profit margins.