Period

Return ( Ri)

15

12

20

(10)

14

Mean
Standard
deviation

=AVERAGE(B2:G2)

10.00

=STDEV(B2:G2)

10.45

Year
Cash Flow
Discount rate

1
1,000
12%

2,000 2,000

4
3,000

5
3,000

=NPV(B3,B2:I2)
PV of Uneven Cash Flow

6
4,000

7
4,000

8
5,000
13,375

How much should you save annually?

Future value

(FV)

2,000,000
Annual saving (PMT)

No. of years (NPER)

5
= PMT(C3,B3,,-A3)

Interest rate ( RATE)

12%
314,819

Finding the Interest Rate

Future value
(FV)

No.of years (NPER)

Annual deposit
(PMT)

8,000

1,000

Interest rate

= RATE(B3,-C3,,A3)

11.43%

How long should you wait?

Future cost(FV)

Annual savings (PMT)

Interest rate (RATE)

1,000,000

50,000

12%

Period of waiting in years

= NPER(C3,B3,,-A3)

10.80

How much can you borrow for a car?

Payment per month (PMT) No.of months (NPER) Interest rate ( RATE)
12,000
Loan amount

36
=PV(C3,B3,-A3)

1.50%
331,928

No. of
instalments
Present value Interest rate (in years)

Annual
instalment
amount

1,000,000

15%

(298,316)

Year

Beginning
amount

Annual
instalment

Interest

Principal
repayment

Remaining
balance

1,000,000

298,316

150000

148,316

851,684

851,684

298,316

127753

170,563

681,121

681,121

298,316

102168

196,148

484,973

484,973

298,316

72746

225,570

259,403

259,403

298,316

38910

259,406

(3)

Initial deposit
Interest rate
Period in years

-300,000
10% =PMT(B2,B3,B1
10

48,824

Exhibit 6.1
Balance Sheet of Horizon Limited as at March 31, 20x1
Rs in million
20 x 1

20x0

500

450

100

100

Reserves and surplus

400

350

Non-current Liabilities

300

270

Long-term borrowings*

200

180

Deferred tax liabilities (net)

50

45

Long-term provisions

50

45

Current Liabilities

200

180

Short-term borrowings @

40

30

Trade payables

120

110

Other current liabilities

30

30

Short-term provisions

10

10

1,000

900

Non-current Assets

600

550

Fixed assets

500

450

Non-current investments

50

40

Long-term loans and advances

50

60

Current Assets

400

350

Current investments

20

20

Inventories

160

140

Trade receivables

140

120

Cash and cash equivalents

60

50

Short-term loans and advances

20

20

1000

900

EQUITY AND LIABILITIES

Shareholders Funds
Share capital (Par value Rs.10)

ASSETS

Rs. 50 million of long-term borrowings are repayable within a year

@ These borrowings are working capital loans which are likely to be renewed in A4the normal
course of business.A36

@ These borrowings are working capital loans which are likely to be renewed in A4the normal
course of business.A37
Exhibit 6.2
Statement of Profit and Loss for Horizon Limited for Year Ending March 31, 20x1
Rs. in million
Current
period

Previous Period

1290

1172

Other Income

10

Total Revenues

1300

1180

Material expenses

600

560

Employee benefit expenses

200

180

Finance costs

30

25

Depreciation and amortisation expenses

50

45

Other expenses

240

210

Total expenses

1120

1020

Profit before exceptional and extraordinary Items and tax

180

160

180

160

Profit Before Tax

180

160

Tax Expense

50

40

Profit (Loss) for the period

130

120

Revenues from Operations

Expenses

Exceptional Items
Profit before Extraordinary Items and Tax
Extraordinary Items

Earning Per Equity Share

Basic

13

Diluted

13

Exhibit 6.5
Cash Flow Statement
(Rs. in million)
Formula

A. CASH FLOW FROM OPERATING ACTIVITES

PROFIT BEFORE TAX

180

=B53

Adjustments for :

Depreciation and amortisation

50

=B45

Finance costs

30

=B44

Interest income*

-10

=-B39

250

=sum(B65:B69

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES

Adjustments for changes in working capital :

Trade receivables and short-term loan and advances

-20

=-(B27-C27)

Inventories

-20

=-(B26-C26)

Trade payables, short-term provisions, and other current liabilities

10

=(B15-C15)

CASH GENERATED FROM OPERATIONS

220

=B70+B72+B73+B74

-50

=-B54

170

=B75+B76

Direct taxes paid

NET CASH FROM OPERATING ACTIVITIES

B. CASH FLOW FFROM INVESTING ACTIVITIES

Purchase of fixed assets

-100

=-(B21-C21+B45)

Increase of non-current investments

-10

=-(B22-C22)

Reduction in long-term loans and advances

10

=(C23-B23)

Interest income

10

=B39

-90

=SUM(B79:B82)

NET CASH USED IN INVESTING ACTIVITIES

C. CASH FLOW FROM FINANCING ACTIVITIES

Increase in long term borrowings

20

=B10-C10

Increase in short-term borrowings

10

=B14-C14

Increase in deferred tax liabilities

=B11-C11

Increase in long-term provisions

=B12-C12

Dividend paid

-80

=-(B55-(B8-C8))

Finance costs

-30

=-B44

NET CASH FROM FINANCING ACTIVITIES

-70

=SUM(B85:B90)

NET CASH GENERATED(A +B+C)

10

=B77+B83+B91

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

50

=C28

CASH AND CASH EQUIVALENTS AT THE END OF PERIOD

60

=B28

Amplified Sources and Uses of Cash Statement

Sources

Formula

Net profit

=B55

130

Depreciation and amortisation

=B45

50

Increase in long-term borrowings

=B10-C10

20

Increase in deferred-tax liabilities

=B11-C11

Increase in long-term provisions

=B12-C12

Increase in short-term borrowings

=B14-C14

10

Increase in trade payables

=B15-C15

10

Decrease in long-term loans and advance=-(B23-C23)

10

Total sources

240

=SUM(G6:G13)

Exhibit 6.6--The Ratios

Foumula

Current ratio

2.00

=B24/B13

Acid-test ratio

1.20

=(B24-B26)/B13

Debt-equity ratio

1.00

=(B9+B13)/B6

Debt ratio

0.50

=(B9+B13)/B18

Interest coverage ratio

7.00

=(B53+B44)/B44

Inventory turnover

8.60

=B38/((B26+C26)/2

Debtors turnover

9.92

=B38/((B27+C27)/2)

Fixed assets turnover

2.72

=B38/((B21+C21)/2)

Average collection period in days

36.78

=365/F24

Total assets turnover

1.37

=B40/((B30+C30)/2)

Gross profit margin

36.43%

=(B38-F39)/B38

Net profit margin

10.0%

=B55/B40

Return on assets

13.68%

=B55/((B30+C30)/2)

Earning power

22.1%

=(B53+B44)/((B30+C30)/2)

Return on capital employed

15.5%

=(B53+B44)*(1-F40)/((B30+C30)/2)

( Rs.in million

Return on equity

27.4%

=B55/((B6+C6)/2)

Price-earning ratio

15.38

=F38/(B55/F41

=F38/(B6/F41)

Market value to book value ratio

Given:
--The market price per share of Horizon
as on 31st March 20X1 is Rs.

200

-The estimated cost of goods sold in

Rs. million

820

--Income tax rate

30%

-Par value of equity share-in Rs.

10

ses of Cash Statement

( Rs.in million)

Uses

Formula

Dividend payment

=G6-(B8-C8)

80

Purchase of fixed assets

=B20-C20+B45

100

Increase in non-current investments =B22-C22

10

Increase in inventories

=B26-C26

20

Increase in trade receivables

=B27-C27

20

Total uses

=SUM(J6:J13)

230

Net addition to cash

=G14-J14

10

Foumula
=B24/B13
=(B24-B26)/B13
=(B9+B13)/B6
=(B9+B13)/B18
=(B53+B44)/B44
=B38/((B26+C26)/2
=B38/((B27+C27)/2)
=B38/((B21+C21)/2)
=365/F24
=B40/((B30+C30)/2)
=(B38-F39)/B38
=B55/B40
=B55/((B30+C30)/2)
=(B53+B44)/((B30+C30)/2)
=(B53+B44)*(1-F40)/((B30+C30)/2)

=B55/((B6+C6)/2)
=F38/(B55/F41
=F38/(B6/F41)

Exhibit 7.1 & 7.3

Probability Distribution of Returns-Expected Return and Standard Deviation
State of
the
Economy Probability
1
0.2
2
0.2
3
0.2
4
0.2
5
0.2
Stock A
Stock B
Portfolio
Stock A
Stock B
Portfolio

Return on Stock A
15
-5
5
35
25
Expected Return
15
15
15
Standard Deviation
14.14
14.14
9.49

Return on Stock B Return on Portfolio

-5
5
15
5
25
15
5
20
35
30
Formula
=B5*C5+B6*C6+B7*C7+B8*C8+B9*C9
=SUMPRODUCT(B5:B9,D5:D9)
=SUMPRODUCT(B5:B9,E5:E9)

=(B$5*(C5-C11)^2+$B$6*(C6-C11)^2+$B$7*(C7-C11)^2+$B$8*(C8-C11)^2+$B$
=(B$5*(D5-C12)^2+$B$6*(D6-C12)^2+$B$7*(D7-C12)^2+$B$8*(D8-C12)^2+$B
=(B$5*(E5-C13)^2+$B$6*(E6-C13)^2+$B$7*(E7-C13)^2+$B$8*(E8-C13)^2+$B

ndard Deviation

mula

11)^2+$B$8*(C8-C11)^2+$B$9*(C9-C11)^2)^0.5
12)^2+$B$8*(D8-C12)^2+$B$9*(D9-C12)^2)^0.5
13)^2+$B$8*(E8-C13)^2+$B$9*(E9-C13)^2)^0.5

State of
nature
Probability
1
0.1
2
0.3
3
0.3
4
0.2
5
0.1
Expected return on security 1
Expected return on security 2

Return on
security 1
( %)
(10)
15
18
22
27
16.0
14.0

Return on Deviation of the

security 2 security 1 from its
(%)
mean
5
(26.0)
12
(1.0)
19
2.0
15
6.0
12
11.0
COVARIANCE=

Deviation of the
security 1 from its
mean
(9.0)
(2.0)
5.0
1.0
(2.0)
SUM=

Product of the
deviations times
probability
23.4
0.6
3
1.2
-2.2
26

Expected Standard
Return
Deviation
Coefficient of Correlation
Security A
12%
20%
-0.2
Security B
20%
40%
Proportio Proportion of
Portfolio
n of A
B
Expected Return
1(A)
1
0
12.00%
2
0.9
0.1
12.80%
3
0.759
0.241
13.93%
4
0.5
0.5
16.00%
5
0.25
0.75
18.00%
6(B)
0
1
20.00%
Formula used for
getting Expected
Return in cell D5 =

Standard Deviation
20.00%
17.64%
16.27%
20.49%
29.41%
40.00%

B5*$B$2+C5*$B$3

Formula used for

getting Standard
Deviation in cell E5= ((B5^2)*$C$2^2+(C5^2)*$C$3^2+2*B5*C5*$D$2*$C$2*$C$3)^0.5

Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Return on Return on
stock
market
A(%)
portfolio(%)
10
12
15
14
18
13
14
10
16
9
16
13
18
14
4
7
-9
1
14
12
15
-11
14
16
6
8
7
7
-8
10

We may use the Excel built in

function SLOPE to calculate the
beta as given below
Beta
0.354

Note: You can get a number of useful

regression statistics using the Summary
Output feature in Excel. The summary
output of the statistics are given in the
next page

SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

Intercept
X Variable 1

0.274
0.075
0.004
8.619
15

Coefficient Standard Error t Stat

P-value
6.813
3.820
1.783
0.098
0.354
0.345
1.026
0.323

Settlement
Maturity

1/1/2006

12/30/2013 The formula in this case is=B3+365*8, as the maturity period is 8 years

Rate

9%

Yield

13.2%

Redemption

This is the date of purchase. If not certain fill in any date

The annual coupon rate

The required return per annum

100

Fill in the redemption value as a percentage of the par value

Frequency

This represents the number of times interest is paid in a year

Basis

3 represents the day count convention :actual no.of days/365, in interest calculation

Price

79.99

To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7)

Bond price is obtained per Rs.100 of the face value of the bond. Here, the redemption value being
Rs. 1000, the price would be Rs.79.99 x 1000/100 = Rs.799.9 or Rs.800
Given the bond price you can use the spreadshet to calculate the yield to maturity. In the above
worksheet, if you type the Price as 80 in cell B8 and wish to calculate the yield to maturity in cell B4
(of course all other data remaining unchanged), type =YIELD(B1,B2,B3,B8,B5,B6,B7) in cell B4 and
press enter any you will get the value as 13.2% in that cell. The cell references in the formula for the
yield respectively stand for Settlement, Maturity,Rate, Price(per Rs.100).Redemption value(per Rs.100),
Frequency and Basis.

Face value
Coupon payable
per annum
Years to maturity
in years
Redemption value
Current market
price

100
15%
6
100

=RATE(C3,C1*C2,-C5,C4)

89.5

Settlement
Maturity

Any date, if the date of

purchase is not certain
=C6+365*C3

Frequency

No. of times interest paid in a

year

Basis

3 represents the day count

convention: actual no. of
days/365 , in interest
calculation

1/1/2006
12/31/2011

=DURATION(C6,C7,C2,F3,C8,C9)

18%

4.256

Current dividend (D0)

No.of years of initial above-normal growth(n)
Rate of above-normal growth (g1)
Stable growth rate(g2)
Required raturn ( r)
Dividend expected a year hence(D1)

2
6
20%
10%
15%
2.40

Intrinsic value of the equity share (P0)

=B6*((1-((1+B3)/(1+B5))^B2))/(B5-3)+((B6*((1+B3)^(B2-1))*(1+B4))/(B5-B4))/((1+B5)^B2)=

70.76

Current dividend (D0)

Present growth rate ( ga)
No. of years of linear decline in growth rate(H)
Stable growth rate(gn)
Required rate of return ( r)
Intrinsic value of the share(P0)
=(B1*((1+B4)+(B3/2)*(B2-B4))/(B5-B4))

3
50%
10
12%
16%
226.50

Exhibit 13.4
Free Cash Flow Forecast
Year
Asset value (Beginning)
NOPAT
Net investment
FCF
Growth rate
ROIC
Tax rate
Debt : equity
Debt value
WACC
Horizon value of the firm
Enterprise value
Equity value of Azura
Value per share of Azura

1
2
3
4
5
500.00 600.00 720.00 864.00 967.70
60.00 72.00 86.40 103.70 115.50
100.00 120.00 144.00 103.70 115.50
-40.00 -48.00 -57.60
0.00
0.00
20%
20%
20%
12%
12%
12%
Cost of equity
33.33%
Pre-tax cost of debt
1
:
1
250
No.of equity shares(cr)
11.00%
1563.9
742.24
492.24
49.22

Rs. in crore
6
1083.20
130.10
86.66
43.44
8%
16%
9%
10

Closing price

Moving Average Analysis

5 day
moving
Trading Closing price average
1
25.0
2
26.0
3
25.5
4
24.5
5
26.0
25.4
6
26.0
25.6
7
26.5
25.7
8
26.5
25.9
9
26.0
26.2
10
27.0
26.4

28.0

Moving Average

27.0
26.0
25.0
24.0
23.0
Ac t
ual

1 2 3 4 5 6 7 8 9 10
Trading day

S
E
u
d
r
R

=Rs.
= Rs.
=
=
=
=

200
220
1.4
0.9
0.1
1.1

Binomial Model
Illustration : page 6.24
Formula
Cu
=MAX(B6*B4-B5,0)
Cd

B
C

=MAX(B7*B4-B5,0)
=(H4-H5)/((B6-B7)*B4)
=(B7*H4-B6*H5)/((B6-B7)*B9)
=I6*B4-I7

60

Rs.

0
0.6
98.18
21.82

Price of stock now,

S0
60

Exercise price,

E
56

Standard deviation of
continuously compounded
annual return

0.3
Years to maturity,

t
0.5

Interest rate per annum r

0.14
d2

d1

Equilibrium value of call

option now,
C0

=(LN(C1/C2)+(C5+(C3^2)/2)*C4)/(C3*(C4^0.5))

0.7613

=C6-C3*(C4^0.5)

0.5492

= C1*NORMSDIST(C6)-(C2/EXP(C5*C4))*NORMSDIST(C7)

9.61

Exhibit 20.1
Loan Amortisation Schedule

Year

Amount
Outstanding
in the
Beginning

Interest

1
2
3
4
5
6
7
8
9
10

8,000,000
7,544,126
7,033,547
6,461,699
5,821,229
5,103,902
4,300,496
3,400,682
2,392,890
1,264,162

960,000
905,295
844,026
775,404
698,547
612,468
516,060
408,082
287,147
151,699

Amount
Principal
Installmen
Outstandin
Repayme
t
g at the
nt
End
Given:
1,415,874 455,874 7,544,126 Loan interest
1,415,874 510,579 7,033,547 Rent per year
1,415,874 571,848 6,461,699 Increase in rent per annum after the
1,415,874 640,470 5,821,229 Net salvage value after 10 years
1,415,874 717,327 5,103,902 Required hurdle rate from the investm
1,415,874 803,406 4,300,496 Equity in the property
1,415,874 899,814 3,400,682 Loan on the property
1,415,874
###
2,392,890 No.of equated annual instalements
1,415,874
###
1,264,162
Amount of equated annual instalmen
1,415,874
###
-12

Exhibit 20.2 : Net Cash Flow

Rental
Income

Post-tax
Rental
Income

Year
A
1
2
3
4
5
6
7
8
9
10

Interest
Payment

1,600,000
1,680,000
1,764,000
1,852,200
1,944,810
2,042,051
2,144,153
2,251,361
2,363,929
2,482,125

B = (0.79A)
1,264,000
1,327,200
1,393,560
1,463,238
1,536,400
1,613,220
1,693,881
1,778,575
1,867,504
1,960,879

Post-tax

Principal
Repayment

Interest
Payment
D=(0.7C)

960,000
905,295
844,026
775,404
698,547
612,468
516,060
408,082
287,147
151,699

672,000
633,707
590,818
542,783
488,983
428,728
361,242
285,657
201,003
106,190

455,874
510,579
571,848
640,470
717,327
803,406
899,814
1,007,792
1,128,727
1,264,175

Net Cash
Flow
F=(B-D-E)
136,126
182,915
230,894
279,985
330,090
381,086
432,825
485,125
537,774
590,515

an interest
nt per year
rease in rent per annum after the first year
t salvage value after 10 years
quired hurdle rate from the investment
uity in the property
an on the property
.of equated annual instalements

mount of equated annual instalments

say

Year

0
1
2
3
4
5
6
7
8
9
10
IRR=

12%
1,600,000
5%
32,000,000
14%
8,000,000
8,000,000
10
1,415,873.31
1,415,874

Net cash flow

including post tax
sale value
-8,000,000
136,126
182,915
230,894
279,985
330,090
381,086
432,825
485,125
537,774
32,590,515
17.06%

Exhibit 22.13 :Portfolio composition for Constant Mix and CPPI policies
Proportion of
stocks in the
portfolio in
Constant Mix
policy

Multiplier in CPPI
policy
2
Floor value in CPPI policy
Constant Mix Policy
CPPI Policy
Market level
Stocks
Bonds
Total
Stocks
100
50,000
50,000
100,000
50,000
(Formulae used)
B5*(1-$B$2)/$B$2
B5+C5
80
45,000
45,000
90,000
30,000
(Formulae used) (B5*A7/A5+C5)*$B$2 B7*(1-$B$2)/$B$2
B7+C7 $D$2*(E5*(A7/A5)+F5-$F$2)
100
50,625
50,625
101,250
45,000
(Formulae used) (B7*A9/A7+C7)*$B$2 B9*(1-$B$2)/$B$2 B9+C9
$D$2*(E7*(A9/A7)+F7-$F$2)
50%

CPPI policies

75,000
CPPI Policy
Bonds
50,000

Total
100,000
E5+F5
60,000
90,000
(E5*(A7/A5)+F5)-E7
E7+F7
52,500
97,500
(E7*(A9/A7)+F7)-E9 E9+F9

Mean
Standard
Treynor
Fund
return
deviation Beta
Measure
A
17.1
28.1
1.2
7.083
B
14.5
19.7
0.92
6.413
C
13
22.8
1.04
4.231
Market Index
11
20.5
1
2.400
Risk-free return
8.6
0
0
Formula used for getting Treynor measure in cell E2
=
Formula used for getting Sharp measure in cell F2
=
Formula used for getting Jensen measure in cell G2
=
Formula used for getting M2 measure in cell H 2
=

Sharp
Measure
0.302
0.299
0.193
0.117

Jensen Measure M2 Measure

5.620
3.801
3.692
3.740
1.904
1.556
0.000
0.000

(B2-$B$6)/D2
(B2-$B$6)/C2
B2-($B$6+D2*($B$5-$B$6))
(($C$5/C2)*B2+(1-$C$5/C2)*$B$6)-$B$5

Managed Portfolio
Stock component
Bonds component
Cash component

Return earned
(percentage)
3.567
1.24
0.60

Weight
0.60
0.25
0.15

Exhibit 23.9
Bogey Performance and Excess Return

Benchmark
Weight
0.50
0.40
0.10

Component
Stock(Nifty)
Bond (I Sec)
Cash (Money market)
Bogey return
Return on managed portfolio
Excess return of managed portfolio

Return of Index
During
Month(percentage)
3.24
1.20
0.60
2.16
2.54
0.38

Exhibit 23.10
Performance Attribution
A: Contribution of Asset Allocation to Performance
Asset Class
Stock
Bond
Cash

Actual Weight Benchmark Weight

0.60
0.50
0.25
0.40
0.15
0.10
Contribution of asset allocation
B. Contribution of Selection to Performance

Asset Class
Stock
Bond
Cash

Excess
Weight
0.10
-0.15
0.05

Portfolio
Excess
Performance(
Index
Performance(
%)
Performance(%)
%)
3.567
3.24
0.327
1.24
1.20
0.040
0.6
0.60
0.000
Contribution of selection within asset classes

Index
Return(%)
3.24
1.20
0.60

Portfolio
Weight
0.600
0.250
0.150

Exhibit 23.11
Sector Selection within the Stock Market

Sector

Beginning of Month Weights(%)

Nifty
Portfolio
Oil and gas
14.1
8.1
Petrochemicals
12.1
6.5
Energy
12.8
16.9
Telecom
10.3
12.5
Information Technology
9.2
1
Financial Services
12.5
10.2
Materials
6.8
14
Consumer goods
9.4
14
Capital goods
7
11.4
Others
5.8
5.4

Difference in
Weights
-6
-5.6
4.1
2.2
-8.2
-2.3
7.2
4.6
4.4
-0.4

Sector
Return(%)
2.55
3
3.4
3.6
2.4
2.2
4.1
4.3
2.7
3.5

Nifty performance net of dividends(%)

3.1

Exhibit 23.12
Summary of Portfolio Attribution
Portfolio weight
Asset allocation
Selection
a. Stock excess return
i. Sector allocation
ii. Security allocation
b. Bond excess return
Total excess return

Contribution(
Basis Points)
17.4

24.8

7.9
32.7
4.0

0.60
0.25

19.6
1.0
38.0

Contribution to
Performance(%)
0.324
-0.180
0.030
0.174

Contribution (%)
0.196
0.010
0.000
0.206

ck Market

Sector Over/Under
Performance
-0.55
-0.1
0.3
0.5
-0.7
-0.9
1
1.2
-0.4
0.4

Sector
Allocation
Contribution(B
asis Points)
3.3
0.56
1.23
1.1
5.74
2.07
7.2
5.52
-1.76
-0.16

Total=

24.8