IRR, Payback, NPV and Parents for Financial Decisions
Are IRR and payback really always so bad for financial decision-making? Why do so many people use them if NPV is so much better? IRR and payback are not bad for financial decision-making. They provide you with different information about a potential investment or project than does NPV. To the academics of finance and accounting, […]
EBITDA Is Not Operating Cash Flow
EBITDA is often treated as a proxy for operating cash flow by finance professionals. While EBITDA is an important finance metric, it is not the same things as operating cash flow. For small businesses, the difference between them is especially important. Here’s an example. Windmill Bakery had a great year. Their income statement shows the […]
One commonly used model for understanding a business is the balance sheet model. From the balance sheet, we can understand corporate finance, whether we’re talking about a small business like a bakery or a huge corporation like Ford Motor Company. Most of corporate finance boils down to 3 sets of questions that relate to the […]
Itô’s Integral and How to Calculate It
The first thing to be said about Itô’s Integral is that it isn’t really an integral in the same sense as an area under a curve basic calculus or Riemann rectangles integration way. An Itô Integral is really fundamentally a finance calculation. It can and frequently does contain negative values. What sort of rectangle has […]
Essentials of Calculus for Finance Professionals
Big Ideas of Calculus As odd as this sounds, what we now refer to as Calculus (or as Real Analysis if we’re British) was independently invented by Isaac Newton in England and GW Leibnitz in Germany during the 1600s. It would be hard to overstate its importance. Basically everything we know about the world from […]
