In this paper we propose an analytical solution to the circularity problem between value and cost of capital. Our solution is derived starting from a central principle of finance that relates value today to value, cash flow, and the discount rate for next period. We derive a general formulation...

There are methods to match value added approaches (Residual Income Method, RIM and Economic Value Added, EVA) with discounted cash flow methods, DCF. In this note we use a real life case from an emerging country to illustrate the matching, with complexities such as unpaid taxes, losses carried...

I identify three sources of risk for the tax shields: two of them associated to the risk of debt and one associated to the operating risk. I present a set of conditions for defining risky debt associated to cash flow and not to accounting earnings. I explain why realization of tax shields for...

Este trabajo muestra la relación entre las betas apalancadas y sin deuda y la formulación general para el costo del capital. También muestra, paso a paso, el procedimiento para calcular las betas a partir de los datos que se encuentran en el mercado de valores. Se muestran procedimientos...

This is a teaching material for a module of Financial analysis at Universidad Tecnológica de Bolivar. The educational material was developed with Professor Ricardo Davila from Universidad Javeriana, Bogota, Colombia. The written material has been modified several times using the feedback from...

This is a course material (slides in pdf format) from the book 'Investment Decision Making For Firm and Project Valuation.' The book is originally in Spanish and is untitled as 'Decisiones de inversion. Para la valoracion financiera de proyectos y empresas.' Chapter 5 deals with how to prepare...

This is a course material (slides in pdf format) for the chapter Financial Analysis and Control Financial Ratio Analysis already in SSRN. In these slides I present a detailed explanation of different financial ratios commonly used in financial management. We introduce some examples in the slides...

In this paper we propose an analytical solution to the circularity problem between value and cost of capital. Our solution is derived starting from a central principle of finance that relates value today to value, cash flow, and the discount rate for next period. We derive a general formulation...

In this work we show a simplified financial planning model. In reality, financial planning models are huge and cumbersome. This is a very simplified model compared with what is found in practice. We present some basic principles for constructing the financial statements needed for valuation. We...

Llano-Ferro (2009) proposes a solution to avoid 'significant errors' when the Weighted Average Cost of Capital (WACC) obtained by the standard formula leads to significant errors in Net Present Value of the Firm calculations; particularly in those that apply to perpetual cash flow series. In...