Corporate Finance Fundamentals Module 2: Capital Investment - Metrics

Glossary of essential capital investment metrics and financial concepts including cash flow analysis, discount rates, and quantitative evaluation tools.

Allocation Metrics

Commonly used measurements to allocate resources across various projects or business units based on profitability or cost-benefit analysis.

Cash Flow Analysis

The process of examining the inflows and outflows of cash to determine the financial viability of projects.

Cumulative Cash Flow

The total sum of cash flows over time, used to evaluate payback periods.

Decision Metrics

Quantitative tools and techniques used to evaluate and compare the viability of investment opportunities.

Discount Rate

The rate used to discount future cash flows to their present value, often representing the cost of capital.

Inflection Point

The point where cumulative cash flow switches from negative to positive, critical for calculating payback periods.

Intercept Function

An Excel function used to find the exact point where cumulative cash flows change from negative to positive.

Internal Rate of Return ($IRR$)

The expected compounded annual rate of return on a project or investment over its life.

Net Cash Flow

The difference between a company's cash inflows and outflows over a given period.

Net Present Value ($NPV$)

The value of all future cash flows, both positive and negative, discounted back to the present.

Payback Period

The time it takes for a company to recover its initial investment in a project.

Present Value ($PV$)

The current value of future cash flows discounted at a specified rate.

Profitability Index

A metric that calculates the ratio of the present value of future cash flows to the initial investment, used to rank investment projects.

Time Value of Money

The principle that a dollar today is worth more than a dollar in the future due to its earning potential.

$$XIRR$$

An Excel function that calculates the internal rate of return for cash flows that occur at irregular intervals.

$$XNPV$$

An Excel function that calculates the net present value for a series of cash flows that are not periodic, using specific dates.