The 8 Principles of Finance

The 8 Principles of Finance

 

Knowledge of these eight principles is essential for understanding the field of finance.  Make sure that you master each of them.

1. Risk-Return Tradeoff

The higher the risk of an investment, the higher the expected return must be.

 2. Leverage

Leverage is a magnification of earnings that results from having fixed costs in the company.  Simply put, leverage is a measure of the degree of sensitivity of earnings to some other measure.

(a) Operating leverage

A magnification of earnings (Net Operating Income or EBIT) that results from having fixed operating costs in the company.  (Examples of fixed operating expenses are salaries, utilities, depreciation, and property taxes.)

(b) Financial leverage

A magnification of earnings (E.A.T.) that results from having fixed financial costs in the company.  (The only type of fixed financial cost considered here is interest expense.)

(c) Total or combined leverage

A magnification of earnings that results from having fixed costs of any type in the company.

Total Leverage = Operating Leverage x Financial Leverage

Formulas:
- Operating leverage is equal to the percentage change in operating income divided by the percentage change in sales.
 - Financial leverage is equal to the percentage change in net income divided by the percentage change in operating income.
 - Total leverage measures the percentage change in net income divided by the percentage change in sales.

                                           {Sales                                                         }

Operating Leverage      { -Operating Expenses                                        }

                                    { E.B.I.T (or Operating Income                            }     Combined

                                                                                                               }      Leverage    

Financial Leverage        { Financial Expenses (i.e. Interest and Taxes)      }

                                    { Earning After Taxes (Net Income)                  }

 

3. Time Value of Money

Money has a time value.  A rational person is not indifferent between having a dollar today or a dollar in the future. Regardless of inflation, a dollar today can be invested and will earn a return over a period of time.

4. Valuation

The value of an asset is equal to the present value of its future cash flows. The rate used for the present value calculations (the capitalization rate) should be the minimum acceptable return, given the risk of the investment.

Value = Present Value of Future Cash Flows

or

Value = Future Cash Flows x Present Value Factor

5. Bond Prices vs. Interest Rates

There is an inverse relationship between market interest rates and the price of existing fixed income securities. e.g., as interest rates rise, prices of existing bonds will fall.

6. Liquidity vs. Profitability

There is a trade-off between liquidity and profitability; gaining more of one ordinarily means giving up some of the other.

 Liquidity                                                                                                Profitability

                                                           à

      |-----------------------------------------------------------------------------|

                                                           ß

 

7. Matching Principle (or the Principle of Suitability)

The maturity of a firm’s assets should match the maturity of the firm’s liabilities, i.e. short-term assets should be financed with short term liabilities; long-term assets should be financed with long-term sources of financing.

 If you violate the matching principle, you create a problem either of too little liquidity or too little profitability.

8. Portfolio Effect (or Diversification)

As assets are added to a group (portfolio), the risk of the total portfolio decreases. This will be true as long as the correlation of the asset being added and the portfolio is less than +1.0.

 

دیوار شیشه ای

دیوار شیشه ای

یکروز یه دانشمند یه آزمایش جالب انجام داد. اون یه اکواریم ساخت و اونو با یه دیوار شیشه ای دو قسمت کرد . تو یه قسمت یه ماهی بزرگتر انداخت و در قسمت دیگه یه ماهی کوچیکتر که غذای مورد علاقه ی ماهی بزرگه بود . ماهی کوچیکه تنها غذای ماهی بزرگه بود و دانشمند به اون غذای دیگه ای نمی داد. او برای خوردن ماهی کوچیکه بارها و بارها به طرفش حمله می کرد، اما هر بار به یه دیوار نامرئی می خورد. همون دیوار شیشه ای که اونو از غذای مورد علاقش جدا می کرد .

بالا خره بعد از مدتی از حمله به ماهی کوچیک منصرف شد. او باور کرده بود که رفتن به اون طرف اکواریوم و خوردن ماهی کوچیکه کار غیر ممکنیه . دانشمند شیشه ی وسط رو برداشت و راه ماهی بزرگه رو باز کرد اما ماهی بزرگه هرگز به سمت ماهی کوچیکه نرفت. اون هرگز قدم به سمت دیگر اکواریوم نگذاشت .
میدانید چرا؟ اون دیوار شیشه ای دیگه وجود نداشت، اما ماهی بزرگه تو ذهنش یه دیوار شیشه ای ساخته بود. یه دیوار که شکستنش از شکستن دیوار واقعی سخت تر بود . اون دیوار باور خودش بود. باورش به محدودیت. باورش به وجود دیوار. باورش به ناتوانی .

ما هم اگه خوب تو اعتقادات خودمون جستجو کنیم، کلی دیوار شیشه ای پیدا می کنیم که نتیجه مشاهدات و تجربیاتمونه و خیلی هاشون هم اون بیرون نیستن و فقط تو ذهن خود ما وجود دارن.

RBM

 

Results-based Management ...RBM

 

 

Results-based management is a life-cycle approach to management that integrates strategy, people, resources, processes and measurements to improve decision-making, transparency, and accountability. The approach focuses on achieving outcomes, implementing performance measurement, learning and changing, and reporting performance.

learning and adjusting                                

planning ........>implemantation and monitoring ........>.Reporting      

Each phase of the management life-cycle is explained below:

Planning

Planning involves the articulation of strategic choices in light of past performance and includes information on how an organization intends to deliver on its priorities and achieve associated results.

Implementation and Monitoring

Ongoing performance measurement and periodic evaluation are key tools through which progress is determined. Performance measurement and evaluation present valuable opportunities to learn and adjust so that the desired results may be achieved.

Reporting

The final stage of the life-cycle approach involves reporting on results through the provision of integrated financial and non-financial information. Results-based information is used for both internal management purposes and for external accountability. The reporting phase also provides managers and stakeholders the opportunity to reflect on what has worked and what has not: a process of learning and adjusting that feeds into the next planning cycle.

 

Source: Official website of the Canadian government

ان رحمت الله قريب من المحسنين

                                                   نیم ز کار تو غافل مدام در کارم
                                                                که لحظه لحظه تورا من عزيز تر دارم
                   به جان پاک تو و آفتاب سلطنتم
  که من تو را نگذارم به مهر بردارم

 
این روایت از امیر مومنان ع نقل شده است :

إِنَّ للهِِ تَعالى شَراباً لاَِوْلِيائِهِ ، إِذا شَرِبُوا سَكِرُو ، وَإِذا سَكِرُوا طَرِبُو ، وَإِذا طَرِبُو طابُو ،

وَإِذا طابُوا ذابُو ،وَإِذا ذابُوا خَلَصُو ، وَإِذا خَلَصُوا طَلَبُو ، وَإِذا طَلَبُوا وَجَدُو ، وَإِذا وَجَدُوا وَصَلُو ،

وَإِذا وَصَلُوا تَصِلُو ،وَإِذا اتَّصَلُوا لا فَرْقَ بَيْنَهُمْ وَبَيْنَ حَبِيبِهِمْ .

غم دل

                              "  گفته بودم  چو بیایی غم دل با  تو  بگویم  "


                               " چه بگویم که غم از دل برود چون تو بیایی "

ادب

پیامبر فرمودند:



                     " احفظ لسانک "


                                          " عینیت ادب باشیم "