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FINANCIAL MODELING
Sectors
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Financial Modeling is the Process of Creating a Numerical Representation of Financial Performance to Forecast Future Results and Guide Strategic Decisions.
It combines historical financial data with assumptions about the future to estimate key financial metrics like revenue, expenses, and cash flow.
CAPITAL ASSETS
Capital Assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business's operation. This also makes it a type of Production Cost.
Capital Assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business's operation. This also makes it a type of Production Cost.
The Value of an Asset is the maximum amount someone would pay to own it. It's calculated using a combination of subjective and objective measurements, and can be affected by a number of factors, including:
The Value of an Asset is the maximum amount someone would pay to own it. It's calculated using a combination of subjective and objective measurements, and can be affected by a number of factors, including:
Risk: The asset's riskiness and the owner's risk aversion
Risk: The asset's riskiness and the owner's risk aversion
Inflation: Whether the dividend and future price are adjusted for inflation
Inflation: Whether the dividend and future price are adjusted for inflation
Depreciation: Deterioration due to age, use, exposure to the elements, or obsolescence
Depreciation: Deterioration due to age, use, exposure to the elements, or obsolescence
Asset-Based Approach
An asset-based approach is a type of business valuation that focuses on a company's Net Asset Value. The net asset value is identified by subtracting total Liabilities from total assets. There is some room for interpretation in terms of deciding which of the company's assets and liabilities to include in the valuation and how to measure the worth of each.
An asset-based approach is a type of business valuation that focuses on a company's Net Asset Value. The net asset value is identified by subtracting total Liabilities from total assets. There is some room for interpretation in terms of deciding which of the company's assets and liabilities to include in the valuation and how to measure the worth of each.
Equity
Equity represents the value of an investor's stake in a company, represented by the proportion of its shares. Owning stock in a company gives shareholders the potential for capital gains and dividends.
Equity represents the value of an investor's stake in a company, represented by the proportion of its shares. Owning stock in a company gives shareholders the potential for capital gains and dividends.
Market Value vs Intrinsic Value
Intrinsic Value has multiple meanings, including the Value of an Asset or Security in Finance, and the value of something in itself in ethics. “The price a rational investor is willing to pay for an investment, given its level of risk.”
Intrinsic Value has multiple meanings, including the Value of an Asset or Security in Finance, and the value of something in itself in ethics. “The price a rational investor is willing to pay for an investment, given its level of risk.”
Expected Return is an important financial concept investors use when determining where to invest their funds. Calculating the expected return of a specific investment or portfolio allows you to anticipate the profit or loss on that investment based on its historical performance.
Expected Return is an important financial concept investors use when determining where to invest their funds. Calculating the expected return of a specific investment or portfolio allows you to anticipate the profit or loss on that investment based on its historical performance.
An Expected Return is calculated by multiplying potential outcomes by the odds of them occurring and then totaling these results. Expected returns cannot be guaranteed.
An Expected Return is calculated by multiplying potential outcomes by the odds of them occurring and then totaling these results. Expected returns cannot be guaranteed.
Multiple Formulas are available. One of the formula, preferred by US Department of Commerce for calculating the expected return of an asset given its risk is as follows:
Multiple Formulas are available. One of the formula, preferred by US Department of Commerce for calculating the expected return of an asset given its risk is as follows:
ERi = Rf + βi (ERm − Rf)
ERi = Rf + βi (ERm − Rf)
• Rf = risk-free rate
• Rf = risk-free rate
• βi = beta of the investment
• βi = beta of the investment
• (ERm − Rf) = market risk premium
• (ERm − Rf) = market risk premium
Formula: Arbitrage Pricing Theory Model
E(R)i=E(R)z+(E(I)−E(R)z)×βn
where:
E(R)i=Expected return on the asset
Rz=Risk-free rate of return
βn=Sensitivity of the asset price to macroeconomicfactor n
Ei=Risk premium associated with factor i
Mathematical Model for the APT
Finance
Intrinsic value is the value of an asset or security based on an objective measure, such as its Cash Flows and financial performance. This is different from the asset's market price, which can be influenced by emotions and opinions. Investors can use intrinsic value to determine if an investment is overvalued or undervalued. For example, if a company's stock has a market price of $125 but an intrinsic value of $118, an investor might decide the stock is too expensive.
Intrinsic value is the value of an asset or security based on an objective measure, such as its Cash Flows and financial performance. This is different from the asset's market price, which can be influenced by emotions and opinions. Investors can use intrinsic value to determine if an investment is overvalued or undervalued. For example, if a company's stock has a market price of $125 but an intrinsic value of $118, an investor might decide the stock is too expensive.
Ethics
Intrinsic value is the value of something that is valuable on its own, or "for its own sake". It's different from instrumental value, or extrinsic value, which is the value something has because of its relation to something else that has intrinsic value. In axiology, a branch of philosophy that studies value, intrinsic value is considered an intrinsic property.
Intrinsic value is the value of something that is valuable on its own, or "for its own sake". It's different from instrumental value, or extrinsic value, which is the value something has because of its relation to something else that has intrinsic value. In axiology, a branch of philosophy that studies value, intrinsic value is considered an intrinsic property.
Weighted Average Cost of Capital
Weighted Average Cost of Capital (WACC) represents a company's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. As such, WACC is the average rate that a company expects to pay to finance its business.
Weighted Average Cost of Capital (WACC) represents a company's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. As such, WACC is the average rate that a company expects to pay to finance its business.
Financial Innovation is the process of creating new financial products, services, or processes. Financial innovation has come via advances in Financial Instruments, Technology, and Payment Systems.
Financial Innovation is the process of creating new financial products, services, or processes. Financial innovation has come via advances in Financial Instruments, Technology, and Payment Systems.
Digital technology has helped to transform the Financial Services Industry, changing how we save, borrow, invest, and pay for goods.
An enabling regulatory and institutional framework and a level playing field for conventional and Islamic banks is critical for the sound and stable growth of the Islamic Banking Industry.
While large banks continue to invest in Mobile Banking, FinTech companies, like Stripe, help small businesses conduct online payments, and investment broker Robinhood seeks to democratize investing and finance. These innovations have increased the number of financial providers available to consumers, borrowers, and businesses.
The Arbitrage Pricing Theory (APT) is an alternative to the Capital Asset Pricing Model (CAMP) that uses fewer assumptions and can be harder to implement than the CAPM. While both are useful, many investors prefer to use the CAPM, a one-factor model, over the more complicated APT, which requires users to quantify multiple factors.
Arbitrage Pricing Theory (APT) is a Multi-Factor Asset Pricing Model based on the idea that an asset's returns can be predicted using the linear relationship between the asset’s expected return and a number of macroeconomic variables that capture systematic risk. It is a useful tool for analyzing portfolios from a Value Investing perspective, in order to identify securities that may be temporarily mispriced.
Key Takeaways
Arbitrage Pricing Theory (APT) is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset’s expected return and a number of macroeconomic variables that capture systematic risk.
Unlike the Capital Asset Pricing Mode (CAPM), which assumes markets are perfectly efficient, APT assumes markets sometimes misprice securities, before the market eventually corrects and securities move back to fair value.
Using APT, arbitrageurs hope to take advantage of any deviations from fair market value.
Formula: Arbitrage Pricing Theory Model
E(R)i=E(R)z+(E(I)−E(R)z)×βn
where:
E(R)i=Expected return on the asset
Rz=Risk-free rate of return
βn=Sensitivity of the asset price to macroeconomicfactor n
Ei=Risk premium associated with factor i
Mathematical Model for the APT
While APT is more flexible than the CAPM, it is more complex. The CAPM only takes into account one factor—market risk—while the APT formula has multiple factors. And it takes a considerable amount of research to determine how sensitive a security is to various macroeconomic risks.
The factors as well as how many of them are used are subjective choices, which means investors will have varying results depending on their choice. However, four or five factors will usually explain most of a security's return. (For more on the differences between the CAPM and APT, read more about
CAPM and Arbitrage Pricing Theory
APT factors are the systematic risk that cannot be reduced by the diversification of an investment portfolio. The macroeconomic factors that have proven most reliable as price predictors include unexpected changes in inflation, Gross National Product (GNP), corporate bond spreads and shifts in the yield curve.
Other commonly used factors are Gross Domestic Product (GDP), commodities prices, market indices, and exchange rates.
The Capital Asset Pricing Model (CAPM) describes the relationship between Systematic Risk or the general perils of investing, and Expected Return for assets, particularly stocks. It is a Finance Model that establishes a linear relationship between the required return on an investment and risk.
CAPM is based on the relationship between an asset’s Beta, the Risk-Free Rate (typically the Treasury Bill Rate), and the Equity Risk Premium, or the expected return on the market minus the risk-free rate.
CAPM evolved as a way to measure this systematic risk. It is widely used throughout finance for pricing risky Securities and generating expected returns for assets, given the risk of those assets and Cost of Capital.
While the principles underpinning Islamic Finance have existed for many hundreds of years, the modern industry started to develop in 1975 with the establishment of the Islamic Development Bank. It has grown rapidly – in 2014 alone, the global market (measured by assets) grew by 12% to $2tn.
While the principles underpinning Islamic Finance have existed for many hundreds of years, the modern industry started to develop in 1975 with the establishment of the Islamic Development Bank. It has grown rapidly – in 2014 alone, the global market (measured by assets) grew by 12% to $2tn.
Common Sharia-compliant Financial Contracts (SFC) include:
Common Sharia-compliant Financial Contracts (SFC) include:
• Consumer loan (Murabaha): Asset purchased by the bank and sold on to the customer with an agreed mark-up;
• Consumer loan (Murabaha): Asset purchased by the bank and sold on to the customer with an agreed mark-up;
• Leasing agreement (Ijarah): Asset purchased by the bank and leased to the customer over a specified period;
• Leasing agreement (Ijarah): Asset purchased by the bank and leased to the customer over a specified period;
• Joint Venture Agreement (Musharaka): Investment partnership in which profit sharing terms are agreed in advance and losses are attributable to the sum invested.
• Joint Venture Agreement (Musharaka): Investment partnership in which profit sharing terms are agreed in advance and losses are attributable to the sum invested.
• Equity financing (Mudaraba): Partnership financing contract under which one party provides the labor whilst the other provides the capital;
• Equity financing (Mudaraba): Partnership financing contract under which one party provides the labor whilst the other provides the capital;
• Advance payment (Salam): A contract in which advance payment is made for specific goods to be delivered later.
• Advance payment (Salam): A contract in which advance payment is made for specific goods to be delivered later.
• Gradual financing (Istisna): A kind of Manufacturing Finance where payments are made in stages to facilitate gradual progress in manufacturing, processing or construction.
• Gradual financing (Istisna): A kind of Manufacturing Finance where payments are made in stages to facilitate gradual progress in manufacturing, processing or construction.
• Agency Agreement (Wakalah): A contract where a person authorizes another to do a certain well-defined legal action on his behalf. Other commonly practiced financial products:
• Agency Agreement (Wakalah): A contract where a person authorizes another to do a certain well-defined legal action on his behalf. Other commonly practiced financial products:
• Bond (Sukuk): Islamic type of bond representing the ownership by the Sukuk holders in the underlying asset;
• Bond (Sukuk): Islamic type of bond representing the ownership by the Sukuk holders in the underlying asset;
• Insurance (Takaful): Takaful (Mutual insurance) is a risk sharing entity that allows for the transparent sharing of risk by pooling individual contributors for the benefit of all subscribers.
• Insurance (Takaful): Takaful (Mutual insurance) is a risk sharing entity that allows for the transparent sharing of risk by pooling individual contributors for the benefit of all subscribers.
WHO ARE WE
WHO ARE WE
We are a Small Group of Multinational-Multidiscipline, Independent, and Lawfully Certified Professionals.
We are a Small Group of Multinational-Multidiscipline, Independent, and Lawfully Certified Professionals.
Our Group Core Expertise includes Capital Project Structuring; Lawful Technology Transfer & Commercialization and Actionable Sustainable Growth Strategy.
Our Group Core Expertise includes Capital Project Structuring; Lawful Technology Transfer & Commercialization and Actionable Sustainable Growth Strategy.
Our Mission: Level Playing Field for Conventional and Islamic Financial System
Our Mission: Level Playing Field for Conventional and Islamic Financial System
Our Focus remains Structural Reforms to strengthen regulatory oversight of the Sharia Acquiescent Monetary System.
Our Focus remains Structural Reforms to strengthen regulatory oversight of the Sharia Acquiescent Monetary System.
Based on the selected country experiences, a number of important lessons and policy options have been drawn that have implications for the stable and sound development of Global Islamic Financial System (GIFS).
Based on the selected country experiences, a number of important lessons and policy options have been drawn that have implications for the stable and sound development of Global Islamic Financial System (GIFS).
The country experiences also underscore the importance of providing an enabling framework while letting market forces determine the size of the industry 1
The country experiences also underscore the importance of providing an enabling framework while letting market forces determine the size of the industry 1
How to Value a Company
How to Value a Company
Fundamental Analysis Tools and Methods
Valuing Non-Public Companies
Introduction to Company Valuation
Financial Statements
Financial Ratios
Fundamental Analysis Basics
SOURCE REFERENCES URLs
SOURCE REFERENCES URLs
Government + Industry + Academia
GOV USA NASA: Artemis
GOV USA NASA: Artemis
1. Director (Research): Head
1. Director (Research): Head
2. Dean (FSS): Member
2. Dean (FSS): Member
3. Two Subject Experts: Member (Co-opted by the Head of RERC)
3. Two Subject Experts: Member (Co-opted by the Head of RERC)
The Terms of Reference (TORs) of the committee and the standard operating procedures (SOPs) of the committee are as under:
The Terms of Reference (TORs) of the committee and the standard operating procedures (SOPs) of the committee are as under:
A. Term of References (ToRs) of the RERC
The PERC reviews research on human subjects. All research (social science) projects involving human subjects, whether as individuals or communities, including surveys, device trial, the use of any material shall be reviewed RERC.
A. Term of References (ToRs) of the RERC
The PERC reviews research on human subjects. All research (social science) projects involving human subjects, whether as individuals or communities, including surveys, device trial, the use of any material shall be reviewed RERC.
B. Standard Operating Procedures (SOPs)
B. Standard Operating Procedures (SOPs)
i. Application submission process
i. Application submission process
a. Submit filled form with all necessary information (available online) to dir.research@pide.org.pk
b. Provide consent form
c. Provide research instrument
d. Incorporate changes recommended by the committee
e. Wait for approval letter before commencing research
a. Submit filled form with all necessary information (available online) to dir.research@pide.org.pk
b. Provide consent form
c. Provide research instrument
d. Incorporate changes recommended by the committee
e. Wait for approval letter before commencing research
ii. Review Process
a. RERC reviews application/proposal
b. Head RERC issue approval letter after completing the review process
c. The approval for a study shall be valid for a maximum one year, after which a re-approval is required. This will be standard for any study irrespective of its duration
ii. Review Process
a. RERC reviews application/proposal
b. Head RERC issue approval letter after completing the review process
c. The approval for a study shall be valid for a maximum one year, after which a re-approval is required. This will be standard for any study irrespective of its duration
iii. Application Submission Requirements An application for ethical review should be accompanied by
a. Covering letter stating the objectives of the research project
b. Completed application form
c. C.V of the Primary Investigator
d. Research Protocol or instrument along with proposal.
e. Budget to assess justification of funds
iii. Application Submission Requirements An application for ethical review should be accompanied by
a. Covering letter stating the objectives of the research project
b. Completed application form
c. C.V of the Primary Investigator
d. Research Protocol or instrument along with proposal.
e. Budget to assess justification of funds
C. Application Fee: PIDE shall charge US$ 500 as processing fee against funded project. Faculty members/students may apply for exemption in case of no funding (or very small funding).
C. Application Fee: PIDE shall charge US$ 500 as processing fee against funded project. Faculty members/students may apply for exemption in case of no funding (or very small funding).
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