Cash flows indicate the Direction

Cash flow indicate the direction of the organization and clearly explain the long term plan of the management. The management is planing for expansion then it would be reflected in the investing section of the cash flow and there would be a huge movement in that section of cash flow.


However if management believe that more depth in current business is required this is also be reflected in the investing activities and entity would be purchasing the fixed asset for the current business expansion .

Management plan to back the entity profit with asset may also be seen in the cash flow and management would be heavily investing on fixed asset.


Management plan to maximize the profit would be reflected by a huge activity level would be observed in operating section of the cash flow.

Management future planing about the equity structure and financing methodology is also reflected in the financing activity portion. The new introduction of capital in financing activity is a clear indication of more reliance on equity.

Types of Investment Appraisal

Investment Appraisal

Investment appraisal basically is a decision making process about investment. whether an investment is to be made in a particular project or not.

Types of Investment appraisal

Types of investment appraisal sometime also refer as technique of investment appraisal . There are following important types of investment appraisal.

1. Pay back
2. Return on capital Employed
3. Net Present Value
4. Internal Rate of Return

Pay Back
 - The amount of period is required to recover the initial investments
Advantages of Pay back Technique

• Easy to calculate
• useful technique for high risk projects

Limitation of Pay Back Technique

Return on Capital Employed -it takes into account the profit

Types of entries in equity market

Equity Market

Stock exchange is normally is considered to be equity market. This is a place where the shares of listed/quoted companies are bought and sold. The two main objective of equity market.

1. Investors are available to companies
2. Investor can readily sell their shares

Types of entries in equity market

Basically there are four types of entry available for companies.

1. Issue share to public at fixed price
2. Issue shares by tender
3. Private company get listed
4. Issue share to institutions

1.Issue share to public at fixed price

Normally this method is adopted by in case of initial subscription. The company advertised in national newspaper to get the share of a company at a fixed price. 

If the share applied is more than shares offered then the company decides the successful bidder by ballot. The each subscriber offered equal number of shares in case of subscription.

2.Issue share by tender

It is kind of open offer to the public or financial institution to bid for the share in junk. The highest bidder is selected. The price is fixed by open operation of the market.

3 Private Company listed

There is shares are offered to public rather public can buy shares once the company is got enlisted in stock exchange.

4. Issue Share to institution

Under this method shares are offered to financial institution. This method is a quick fund raising with minimum issuing related cost and procedures.

Important Factors of Time Value of Money

Time Value of Money

The concept is very simple that the worth of money changes with time. Therefore the future cash flow are discounted to get present value of future cash flows. it means that if 5000 is expected to inflow after 5 years is discounted to find the current value of 5000.

There are mainly three reasons for introducing the concept of time value of money.

1. Inflation
2. Risk factor
3. Interest Factor

Example of time value of money

The simple example is that if Mr. A give 1000 USD to Mr. B and Mr. B is required to pay back 1000 in 20 years so after 20 years the worth of 10,000 would not be same and therefore the interest element is added.