By Steven M. Bragg
''This booklet is designed to help a firm controller, or the other member of the accounting and finance staffs, within the research of all company activities'' (from the Preface). It deals suggestion on comparing acquisitions, interpreting possibility, bettering company functionality, asset procurement, expanding shareholder price, detecting and diagnosing difficulties, utilizing monetary research stories, and predicting destiny stipulations. Appendices comprise lists of signs and ideas and normal ratios. Bragg has labored as a prime monetary officer and as a consulting supervisor.
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Extra info for Financial Analysis: A Controller's Guide
The final column multiplies the cash flow from the second column by the discount rate in the third column to yield the present value of each cash flow. The grand total cash flow is listed in the lower right corner. 6806 +20,418 Net Present Value +$6,894 * Discount factor is 8%. 3 becomes progressively smaller in later years, because cash flows farther in the future are worth less than those that will be received sooner. The discount factor is published in present value tables, which are listed in many accounting and finance textbooks.
Because the discount rate is higher than the actual rate of return, the net present value is negative. Also, this can be considered a risky project, since the number of years needed to pay back the initial investment is quite lengthy. The next section of the form is for the type of project. The purpose of this section is to identify those investments that must be completed, irrespective of the rate of return; these are usually due to legal or safety issues. Also, if a project is for a new product, management may consider it to be especially risky, and it will therefore require a higher hurdle rate.
For them, creating a proposal form will become a major chore that is to be delayed or avoided at all costs. To keep this situation from arising, the controller must remember that most capital requests are very small, usually hovering near the low-end capitalization limit, and so do not require a vast analysis. Only a few very large capital investments are worthy of in-depth review, and so should be treated as the exception, not the rule. Based on this logic, the investment proposal form should be a small one, which the controller can investigate in greater detail if the size or uncertainty of the investment appears to warrant it.