Project Finance Modeling | Profitability Analysis | Financial Modeling

simply learn your pace your place module 1 be part 1 profitability analysis introduction hello and welcome to the lesson on profitability analysis of the financial modeling course by simply learn this lesson is about profitability analysis profitability analysis is a branch of financial analysis that consists in putting measures of profit into perspective saying that a company has made a profit of 1 million dollars in year 2011 doesn't tell us much about how good its performance was which effort was deployed to achieve this performance or what level of capital the company operates with to attain such a profit level profitability analysis shed some light on those aspects the presentation we will go over today should give you a broad overview of the important aspects of profitability with some concrete practical examples now let's move on to our agenda agenda beside the need for a relative measure of profit rather than absolute at a fundamental level investors need a sound measure of how good an investment is compared to another one the concept of internal rates of return called IRR is such a measure we will discuss this measure of profitability and see how it is calculated with a concrete example of IRR calculation one of the influencing factors of profitability is costs cost impact profit directly and for this reason a good understanding of cost structure can help to increase profitability we will go over the various types of costs and discuss how cost analysis can be used to optimize production through the concept of break-even analysis profitability of a particular project is usually a fairly objective measure when a company already has several projects on its business the profitability of a new project can result from synergies and diversification with existing projects this is called relative profitability and we will provide some insight into this topic we will then get some insight into decisions modeling via an example taken from game theory which is a branch of mathematics dealing with strategic decisions finally we'll go over various aspects of profitability via some examples of investment cash flow patterns let us now get started with this exciting presentation the internal rate of return IRR the internal rate of return is yes a rate of return that simply means that it is no difference from any type of interest rate as it represents a relative return on money invested the IRR is used to compare several investment propositions it could be thought of as an overall rate of return on the

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