Articles

Macauley duration

Macauley duration is an indicator of bond´s sensitivity to interest changes. It can be alternatively used as a method for investment project appraisal. (35) The steps for calculation: Preparation of the relevant cash-flow table for each period – see the possible proforma in the artic

Adjusted present value (APV)

Adjusted present value (APV) is very similar method to net present value (NPV). It is used for project appraisal mainly if: the existing capital structure will be significantly changed by undertaking the project - compared to traditional NPV technique, the decision based on APV takes into account

Strategic planning

Strategic planning is a long-term process during which is determined where the company wants to get in the forthcoming future and how it is going to achieve it. The input for strategic planning is usually an analysis of the internal and external environment (position audit) and company vision and

Vision

Vision is a general statement emphasizing where the company wants to be in the future. Vision is often in the form of just one inspirational sentence.

Strategy

Strategy is a method or action for achieving the chosen objectives. The process of strategy setting involves the following stages: develop possible alternative strategies – scenario planning is often practiced evaluate them by their: acceptability – whether it is acceptable to t

Operational plan

Operational plan is short-term (for a few months to approx. 3 years, typically for just 1 year) prepared by lower level management that focus on specific parts of the entity, e.g. on production or sales. Operational plans are based on more general strategic (corporate) plan and work it out into bigg

Equivalent annual annuity (EAA)

Equivalent annual annuity (EAA) is the method used to decide which mutually exclusive investment project with unequal life shall be accepted.   EAA formula NPV * annuity factor for the number of project life years   NPV......net present value   The project with the highest EA

How to deal with risk in investment appraisals

There are several approaches to investment project appraisals that can be undertaken if risk or uncertainty is a significant factor: investment appraisals made in scenarios calculating expected values carry out an sensitivity analysis increase the risk premium in the discount rate for more ris

Strategic planning process

Strategic planning diagram    Pre-conditions of strategic planning Already at the beginning of strategic planning, the entity shall have: analyzed external and internal situation – position audit defined vision and mission statements possibly also defined the corporate cult

Mission

Mission is a general statement in which is shortly explained how the entity aims to achieve its vision. It contains for example: what the entity aims to achieve (profit, social welfare etc.) definition of key stakeholder groups (mainly customers) and how the company wishes to treat them how it

Strategic plan / Corporate plan

Strategic (corporate) plan is a long-term (the period covered can be around 10 years) higher-level plan prepared by top management for the purpose of meeting the corporate goals. It focuses on the entire entity, strongly considers the external situation and can be both quantitative and qualitative.

Fixed budget

Fixed budget is a budget that is not flexed with the changed production/sales volume or other significant variable.  The variances between budget and actual are therefore usually great. But in practice, fixed budgets are used more widely than flexible budgets.   Fixed budget is useful ma

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