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Data Processing Overview Document

The document discusses various financial metrics and formulas used in capital budgeting and mergers and acquisitions. It defines the average accounting rate of return (AAR) and profitability index formulas. It also lists metrics like PE ratio, market capitalization to sales, debt to earnings ratio, and return on equity. Finally, it describes industry life cycles, motives for mergers at different stages, and types of mergers like conglomerate and horizontal.

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Namrata Jain
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53 views4 pages

Data Processing Overview Document

The document discusses various financial metrics and formulas used in capital budgeting and mergers and acquisitions. It defines the average accounting rate of return (AAR) and profitability index formulas. It also lists metrics like PE ratio, market capitalization to sales, debt to earnings ratio, and return on equity. Finally, it describes industry life cycles, motives for mergers at different stages, and types of mergers like conglomerate and horizontal.

Uploaded by

Namrata Jain
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

FORMULAS Capital Budgeting

Reading 27

1 Average Accounting Rate of Return

(AAR) = Average net income Average book value (PI) = PV of future cash flows Initial investment = 1+ NPV Initial Investment

2 Profitability Index

PE Ratio

Market price per share Earnings per share Market capitalisation Net sales Profit after tax & adjustments No. of equity shares outstanding no negative & dip shud not be more than 45%

Market Cap to Sales

Earnings per share

Debt to Earnings Ratio Long Term Debt Profit after tax Profit after tax Shareholder's Equity

<=5

Return on Equity

10 year average ROE should be greater than or equal to 15%

Mergers and Industry Life Cycles Industry Description Industry exhibits substantional development costs and has low, but slowly increasing, sales growth Motives for Merger Younger, smaller companies may sell themselves to larger companies in mature or declining industries and look for ways to enter into a new groth industry Young companies may look to merge with companies that allow them to pool management and capital resources Industry exhibits high profit margins caused by Explosive growth in sales may require large capital requirements to few participants in the market expand existing capacity

Industry Life Cycle Stage

Pioneering Development

Rapid accelerating growth

Types of Merger

Conglomerate, Horizontal

Conglomerate, Horizontal

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