1) Net Present Value (NPV) – Used to determine does the project will be profitable down the road in number of years. The NPV is sum of all future cash flows over the project timeline, discounted to present value. After calculation, if the result is positive, the project is profitable and worth to invest. If the result is negative or zero, do not invest as it wouldn’t able to meet my expectation of quick and high levels of profits.
2) Internal Rate of Return (IRR) – A metric used to estimate the profitability of the invested project. NPV is set to 0. The higher the IRR, the better is the investment.
3) Profitability Index (PI) – The ratio between the present value of future expected cash flows and the initial amount invested in the project. A higher PI means that a project will be considered more attractive.
4) Payback Period (PP) – Length of time for the project to break even with profits able to cover the costs. Shorter PP more fits to my expectation of quick and high levels of profits.
In conclusion, for me to make quick and high levels of profit, 1st I would also use Net Present Value (NPV) to screen through remove options that resulted negative or zero. 2nd I will use Profitability Index (PI) to determine which project worth the investment. Lastly I would use Payback Period (PP) for time factor to see which can be quickest generate the profits.
· Profitability is the difference between revenue minus total cost.
· Liquidity is how soon an asset can be converted into ready cash without affecting it’s market price.
Cash conversion cycle in a business is the amount of time a business needs to convert investment to cash. The CCC uses the average time to pay suppliers, create inventory, sell the products and collect customer payments. The shorter the cycle, the better is for the business.