The Power of Compounding:
The Power of Compounding The story of chess:
One-grain + two-grains + four-grains…
Upto the 64th square in the board
Three trillion lorry loads!
To grow in a year, need a square field 1600 times circumference of earth
Compound Interest:
Compound Interest Note: Infinitesimal compounding leads to the base of natural logarithm e. (1+1/n)^n = e if n ∞
Time is Money:
Time is Money Present value: A potential income of Rs. 1600, twenty years in the future, is worth only Rs. 100 today.
Future value: Rs. 6 today is worth Rs. 100 twenty years later.
CAGR: If an investment doubles in 5 years, you can expect it to grow 16-fold over 20 years. The Compounded Annual Growth Rate of such an investment is 15%.
Valuing future cash-flows:
Valuing future cash-flows Present value method
IRR (Internal Rate of Return) method
Double-entry book-keeping:
Double-entry book-keeping Each transaction involves movement of money: from an origin to a destination.
Credit the origin, debit the destination. Then the account remains ‘balanced’.
Income = Expenditure (Pandamp;L Statement)
Receipts = Payments (Cash-flow Statement)
Assets = Liabilities (Balance Sheet)
The operating cash cycle:
The operating cash cycle
Cash-Flow:
Cash-Flow Operating Cash flow = Op. Profit + Depreciation
What is Depreciation?
Non-op. Cash out-flows
Interest, tax and dividends
Loan repayments
Capital expenditure
Non-op. cash in-flows
New equity capital
New long-term loans
Sale of fixed assets
Balance Sheet:
Balance Sheet
Thank you!:
Thank you!