Risk return analysis and comparative study

Other things being equal, analysts prefer a shorter payback to a more extended period. Therefore, payback for Beta is better i. Nevertheless, financial officers in some industries such as financial services or insurance rely on the metric for decision support.

It is not possible to estimate simple ROI from these curves because they represent net cash flow figures, not the cash inflows or cash outflows that make up the net results. For more on "cumulative cash flow" and payback, see the articles Cash Flow and Payback Period.

If both investments have no impacts after year 5, of course, there will be no "future performance to consider. All of this leads to these conclusions: The "Net Present Value" NPV Metric When cash flow returns and costs extend two years or more into the future, almost all analysts will want to compare cash flow streams with the net present value NPV metric.

These "Investment View" metrics all compare the timing and sizes of returns and costs. The analysis shows that each case has points in its favor, compared to the other, and decision-makers must, therefore, weigh ROI results along with several different metrics to decide which is the best choice for them.

This point on the time axis is the payback period for each case. In reality, not many people in business are prepared to explain IRR figures in a way that makes practical sense for decision-makers and investors.

When different metrics disagree as to which option is the better choice, decision-makers must examine the current financial situation to decide which to follow.

Future Performance Future performance is not a financial metric, per se, but while reviewing total net cash flow, an astute analyst will notice that the two cumulative cash flow curves point to very different results for the years after year five.

Hence, Case Alpha outscores Beta on the total net cash flow metric. Analysts consider a shorter payback period less risky than a more extended payback period. And, "What do we get back for what we spend? The Payback Period Metric The curves above show roughly the point in time when cumulative cash flows "break even," that is when total inflows balance total outflows.

Note especially that some people refer to cash flow graphs such as these as "return on investment curves. Therefore, the analyst can say that Alpha has the higher profits. Five Financial Metrics to Compare with Return on Investment When comparing different investment choices, here are some metrics to consider: Note that several different financial metrics besides ROI serve this purpose.

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The table below summarizes these differences for this example: However, when proposals compete for funds, and when other factors are equal, decision makers prefer the submission with the higher IRR. In conclusion, case Beta has the advantage regarding IRR. Just one financial metric should not decide critical decisions.

Total Net Cash Flow When comparing cash flow streams like these, the analyst no doubt turns first of all to the financial metric total net cash flow. The Internal Rate of Return Metric Finally, in some settings, analysts will compare cash flow streams regarding the internal rate of return metric.

And, also note, that the different "metrics" can disagree on which of the investments is the better business decision. The two most important reasons are probably these: Which case, Alpha or Beta, is the better business decision?

Financial Metrics Comparison Summary In conclusion, different financial metrics can disagree on which investment is the better business decision. At the same time, however, each of these metrics is blind to particular characteristics of the cash flow streams— features that other financial metrics do see.

Simple Return on Investment Among the financial metrics, the analyst will probably turn secondly to the simple ROI figures for each case. The analyst may also note that Beta, in fact, shows greater profitability at every year-end through the 5-year period. Analysts prefer the shorter payback period because it means they recover cost expenditures sooner, and these funds are ready for use again, sooner.

As a result, the analyst may choose to report that Beta scores higher in profitability. Regarding the payback period, therefore, Case Beta scores higher than Case Alpha.Alternatively the object of study can be reconceptualized at a higher level of variation-finding comparisons are I believe the two fundamental types of comparative analysis and I shall return to them below.

Tilly’s final type, ‘encompassing comparison’, to reduce the risk of. Keywords: Risk analysis, Return analysis, Comparative study, Islamic banking, Pakistani Banks, Bankruptcy, FX risk Suggested Citation: Suggested Citation Khalid, Muhammad Bilal and Hanif, Muhammad, Comparative Risk Return Analysis of Conventional and Islamic Banks in.

COMPARATIVE ANALYSIS AND CASE STUDY George RL Niumataiwalu SPC-EU EDF10 Deep sea mineral regional workshop Differentiate risk/return criteria, Apply an INTERNAL RATE OF RETURN (IRR) for comparative analysis –Company’s viewpoint.

context it becomes pertinent to study the pattern and behavior of the Mutual fund schemes, to which the common man is still unaware of it. The risk-return ANALYSIS OF THE RISK AND RETURN RELATIONSHIP OF EQUITY BASED MUTUAL FUND IN INDIA. Islamic banks manage equity investment, market, operational risk, rate of return and liquidity.

In this regard, Comparative study of risk management practices of Islamic versus conventional banks in Pakistan mint-body.com 81 | Page The targeted population of this research is based on relationship associates, chief risk officers. Comparative study of Profitability and Liquidity analysis of Islamic Banks in Bangladesh In this depressed world financial scenario, Islamic banking has emerged as a strong alternate financial system.

Risk return analysis and comparative study
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