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Definitions (42)
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Inventory
Raw materials, supplies, work in process, and finished goods
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tornado chart
see Sensitivity chart
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Standard deviation
Metric for measuring the spread in a data set (see also FinanceIsland's basic statistics tutorial
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Profitability index
Present value of future cash flows divided by the initial investment The profitability index (also referred to as the benefit-cost ratio) can also be calculated as NPV divided by the initial investmen [..]
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Risk-free rate
Component of the Capital Asset Pricing Model (CAPM) that represents the discount rate for risk-free investments (see also FinanceIsland's Risk & CAPM tutorial
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Present value
Discounted value of future cash flows Present value is calculated based on a discount rate that takes into account that a dollar today is worth more than a dollar tomorrow and that a safe dollar is wo [..]
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Probability distribution
Describes how likely it is that a measure will take on a particular value A probability distribution is an input into Monte Carlo simulation. There are dozens of probability distributions in statistic [..]
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Payback period
Number of periods it takes until the cumulative cash flow becomes positive Investment projects are accepted if the payback period meets some predefined cutoff period. Since this cutoff period is chose [..]
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Net present value
Sum of discounted cash flows Discounted cash flows are present values of cash flows, whether in- or outflows. When comparing different investment options with varying levels of cash flows in varying t [..]
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