Investment is an asset acquired or invested in to build wealth and save money from the hard earned income. Investment is primarily made to obtain an additional source of income or gain profit from the investment over a specific period of time.Some investor look for a long period according to their needs but some focus on short term period. For this purpose two types of analysises are important. One analysis attempts to calculate the intrinsic value of a stock using data such as revenue, expenses and growth prospective and another analysis uses best market activities, stock price trends and past data to predict activities in future. a.What is the difference in both analyses? b.Which analysis is useful for long term investor and financial advisors? Give the reasons with examples.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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