Businesses always need to know how much inventory is left and what is its worth. This is especially applicable to eCommerce firms. It is therefore of prime importance to calculate the inventory with the right inventory tracking method to manage the eCommerce demands and earn profits from them.There are many variables in the calculation of inventory and hence keeping track of it may look gruesome. Fortunately, there are ample inventory tracking solutions to help businesses in continuing their operations. The "weighted average cost" is one of them.What is Weighted Average Cost (WAC)?"Inventory weighted average" or the "weighted average cost" is ... Read More

The payback method is a non-DCF method for investment evaluation. However, it is quite popular among economists and financial managers due to some virtues mentioned below −SimplicityAs the time value of money and discounted cash flow are not considered, payback is a simple standalone tool for the evaluation of investments. Also, payback is quite easy to calculate and understand which is why it can be used by non-financial managers too. Simplicity in calculation and use is probably the most notable virtue for the popularity of the payback method.Cost-effectivenessThe payback method is not only simple but is also quite cost-effective to ... Read More

Both "cash flow" and "profit" are vitally important for businesses and there are distinctions and notable differences between the two. As a business owner, taking cash flow for profit can be a serious mistake. While a company can be highly profitable with a little cash flow, some companies may have high cash flows yet are less profitable.Cash FlowCash flow in brief is the amount of money that comes into, through and out of the businesses over a set period. Credit from suppliers, money owed to debtors, and cash in bank are not included in cash flow. It is completely concerned ... Read More

What is Preferred Stock?Preferred stock is used to fund expansion projects or improvements that firms seek to engage in. Like all other equity capital forms, selling preferred stock helps companies to raise funds.Preferred stock does not dilute the ownership stake of common shareholders, as preferred shares don’t hold the same voting rights that common shares do.What is the cost of preferred stock?The price of the preferred stock is the price the company pays in return for the income it gets from the issuance and sale of shares. It is the money a company pays in a year divided by the ... Read More

Payback is a method related to capital budgeting. The payback period in capital budgeting refers to the time required for the return on an investment (ROI) to "repay" or pay back the total sum of the original investment.Payback is a popular method of evaluation of investment because it is easy to understand and calculate regardless of what it actually means.Despite being a non-DCF evaluation method, payback is used extensively in the evaluation of investments for its simplicity in calculation and application. It is quite useful in comparing the calculation of similar investments.The payback method doesn’t have any specific criteria for ... Read More

Net Present Value or NPV is a true measure of an investment’s profitability and gain. However, like all the other methods, the NPV calculation has its own merits and demerits.Merits of NPV MethodFollowing are the merits of using the NPV Method as an investment evaluation method −NPV deals with the time value of money. According to the time value principle, a rupee today is more in worth than a rupee tomorrow. Including time value helps the principle earn true profits on a future date.NPV is the measure of true profitability as considers all cash flows of the investment. Estimating and ... Read More

The Discounted Cash Flow (DCF) method is a widely used technique for valuation in the financial world. The extended procedure of Net Present Value (NPV) is an exclusively used technique in valuing capital investment projects. These projects usually cover the purchase of machinery and equipment as well as the valuation of businesses in cases of mergers and acquisitions (M&A).The DCF method may be quite popular, but it has a major flaw: it does not show any flexibility of cash flows. In the real world, capital investment projects can be changed at any time, and hence, the DCF technique is worthless ... Read More

Capital Budgeting Decisions are critical in nature, and they are complex too. Capital budgeting decisions are not taken frequently and since large funds are involved, the decisions must consider the long-term impact on the profitability and cost structure of the firm.Another important note about capital budgeting decisions is that they are irreversible in nature. Therefore, capital budgeting decisions have to be taken after thorough analysis and research.The significance of capital budgeting decisions can be categorized into the following five subjects −GrowthCapital budgeting decisions are important because they extend the growth of a company. The decisions are taken to make the ... Read More

Usually, the investment decision rules are known as capital budgeting decisions or investment criteria. To determine the financial worth of an investment project, sound capital budgeting rules should be followed.The most important property of a good capital budgeting technique is that it should maximize shareholders’ wealth. However, there are some other rules too that must be followed for making an investment decision. These include the following −An investment decision should address all cash flows to determine the correct profitability of a project. This should include all cash inflows and cash outflows. Usually, the calculation of cash flows is a necessary ... Read More

In finance and economics, investments have been categorized into various sectors. Independent and contingent investments are two broad subjects of investment decisions. Usually, there is no relation between independent and contingent decisions, but they may be considered two broad aspects of investments that determine the nature and characteristics of investments altogether.As the names suggest, independent investments are independent in nature, while contingent investments are related to some other types of investment.Independent InvestmentsIndependent investments are free from the influence of any other related investments. It is done singularly and executed for the benefit of the firm undertaking the investments.Independent investments may ... Read More