Period 1 2 3 4 5 6

Return ( Ri) 15 12 20 (10) 14 9

Mean =AVERAGE(B2:G2) 10.00

Standard
deviation =STDEV(B2:G2) 10.45
Year 1 2 3 4 5 6 7 8

Cash Flow 1,000 2,000 2,000 3,000 3,000 4,000 4,000 5,000

Discount rate 12% =NPV(B3,B2:I2) 13,375

PV of Uneven Cash Flow

 How much should you save annually?

Future value (FV) No. of years (NPER) Interest rate ( RATE)

2,000,000 5 12%

Annual saving (PMT) = PMT(C3,B3,,-A3) 314,819

 Finding the Interest Rate
Future value Annual deposit
(FV) No.of years (NPER) (PMT)

8,000 6 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 36 1.50%

Loan amount =PV(C3,B3,-A3) 331,928

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

1,000,000 15% 5 (298,316)

Beginning Annual Principal Remaining

Year amount instalment Interest repayment balance

1 1,000,000 298,316 150000 148,316 851,684

2 851,684 298,316 127753 170,563 681,121

3 681,121 298,316 102168 196,148 484,973

4 484,973 298,316 72746 225,570 259,403

5 259,403 298,316 38910 259,406 (3)

Initial deposit -300,000

Interest rate 10% =PMT(B2,B3,B1 48,824

Period in years 10
 Exhibit 6.1
Balance Sheet of Horizon Limited as at March 31, 20x1
Rs in million
20 x 1 20x0
EQUITY AND LIABILITIES
Shareholders Funds 500 450

Share capital (Par value Rs.10) 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
ASSETS
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
* 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

Revenues from Operations 1290 1172

Other Income 10 8

Total Revenues 1300 1180

Expenses

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

Exceptional Items

Profit before Extraordinary Items and Tax 180 160

Extraordinary Items

Profit Before Tax 180 160

Tax Expense 50 40

Profit (Loss) for the period 130 120

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

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 250 =sum(B65:B69

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

Direct taxes paid -50 =-B54

NET CASH FROM OPERATING ACTIVITIES 170 =B75+B76

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

NET CASH USED IN INVESTING ACTIVITIES -90 =SUM(B79:B82)

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 5 =B11-C11

Increase in long-term provisions 5 =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 ( Rs.in million
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 5

Increase in long-term provisions =B12-C12 5

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 =SUM(G6:G13) 240

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)

Return on equity 27.4% =B55/((B6+C6)/2)

Price-earning ratio 15.38 =F38/(B55/F41

Market value to book value ratio 4 =F38/(B6/F41)

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 Return on Stock A Return on Stock B Return on Portfolio
1 0.2 15 -5 5
2 0.2 -5 15 5
3 0.2 5 25 15
4 0.2 35 5 20
5 0.2 25 35 30
Expected Return Formula
Stock A 15 =B5*C5+B6*C6+B7*C7+B8*C8+B9*C9
Stock B 15 =SUMPRODUCT(B5:B9,D5:D9)
Portfolio 15 =SUMPRODUCT(B5:B9,E5:E9)
Standard Deviation
Stock A 14.14 =(B$5*(C5-C11)^2+$B$6*(C6-C11)^2+$B$7*(C7-C11)^2+$B$8*(C8-C11)^2+$B$
Stock B 14.14 =(B$5*(D5-C12)^2+$B$6*(D6-C12)^2+$B$7*(D7-C12)^2+$B$8*(D8-C12)^2+$B
Portfolio 9.49 =(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$9*(E9-C13)^2)^0.5
 Return on Return on Deviation of the Deviation of the
State of security 1 security 2 security 1 from its security 1 from its
nature Probability ( %) (%) mean mean
1 0.1 (10) 5 (26.0) (9.0)
2 0.3 15 12 (1.0) (2.0)
3 0.3 18 19 2.0 5.0
4 0.2 22 15 6.0 1.0
5 0.1 27 12 11.0 (2.0)
Expected return on security 1 16.0 COVARIANCE= SUM=
Expected return on security 2 14.0
Product of the
deviations times
probability
23.4
0.6
3
1.2
-2.2
26
 Expected Standard
Return Deviation Coefficient of Correlation
Security A 12% 20% -0.2
Security B 20% 40%
Proportio Proportion of
Portfolio n of A B Expected Return Standard Deviation
1(A) 1 0 12.00% 20.00%
2 0.9 0.1 12.80% 17.64%
3 0.759 0.241 13.93% 16.27%
4 0.5 0.5 16.00% 20.49%
5 0.25 0.75 18.00% 29.41%
6(B) 0 1 20.00% 40.00%
Formula used for
getting Expected
Return in cell D5 = B5*$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
 Return on Return on
stock market
Period A(%) portfolio(%)
1 10 12
Note: You can get a number of useful
2 15 14 regression statistics using the Summary
3 18 13 Output feature in Excel. The summary
4 14 10 output of the statistics are given in the
5 16 9 next page
6 16 13
7 18 14
8 4 7
9 -9 1
10 14 12
11 15 -11
12 14 16
13 6 8
14 7 7
15 -8 10
We may use the Excel built in
function SLOPE to calculate the
beta as given below
Beta 0.354
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.274
R Square 0.075
Adjusted R Square 0.004
Standard Error 8.619
Observations 15

Coefficients Standard Error t Stat P-value

Intercept 6.813 3.820 1.783 0.098
X Variable 1 0.354 0.345 1.026 0.323
Settlement 1/1/2006 This is the date of purchase. If not certain fill in any date

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

Rate 9% The annual coupon rate

Yield 13.2% The required return per annum

Redemption 100 Fill in the redemption value as a percentage of the par value

Frequency 1 This represents the number of times interest is paid in a year

Basis 3 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 100
Coupon payable
per annum 15%
Years to maturity
in years 6 =RATE(C3,C1*C2,-C5,C4)
Redemption value 100
Current market
price 89.5
Any date, if the date of
Settlement purchase is not certain 1/1/2006
Maturity =C6+365*C3 12/31/2011 =DURATION(C6,C7,C2,F3,C8,C9)
No. of times interest paid in a
Frequency year 1

3 represents the day count

convention: actual no. of
days/365 , in interest
Basis calculation 3
 18%

4.256
Current dividend (D0) 2
No.of years of initial above-normal growth(n) 6
Rate of above-normal growth (g1) 20%
Stable growth rate(g2) 10%
Required raturn ( r) 15%
Dividend expected a year hence(D1) 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) 3
Present growth rate ( ga) 50%
No. of years of linear decline in growth rate(H) 10
Stable growth rate(gn) 12%
Required rate of return ( r) 16%
Intrinsic value of the share(P0)
=(B1*((1+B4)+(B3/2)*(B2-B4))/(B5-B4)) 226.50
 Exhibit 13.4
Free Cash Flow Forecast
Rs. in crore
Year 1 2 3 4 5 6
Asset value (Beginning) 500.00 600.00 720.00 864.00 967.70 1083.20
NOPAT 60.00 72.00 86.40 103.70 115.50 130.10
Net investment 100.00 120.00 144.00 103.70 115.50 86.66
FCF -40.00 -48.00 -57.60 0.00 0.00 43.44
Growth rate 20% 20% 20% 12% 12% 8%
ROIC 12% Cost of equity 16%
Tax rate 33.33% Pre-tax cost of debt 9%
Debt : equity 1 : 1
Debt value 250 No.of equity shares(cr) 10
WACC 11.00%
Horizon value of the firm 1563.9
Enterprise value 742.24
Equity value of Azura 492.24
Value per share of Azura 49.22
 Moving Average Analysis

Closing price
5 day
moving
Trading Closing price average
Moving Average
1 25.0 28.0
2 26.0
27.0
3 25.5
4 24.5 26.0
5 26.0 25.4 25.0
6 26.0 25.6 24.0
7 26.5 25.7
23.0
8 26.5 25.9 Ac t 1 2 3 4 5 6 7 8 9 10
9 26.0 26.2 ual
Trading day
10 27.0 26.4
 Binomial Model
Illustration : page 6.24
Formula
S =Rs. 200 Cu =MAX(B6*B4-B5,0) 60
E = Rs. 220 Cd =MAX(B7*B4-B5,0) 0
u = 1.4 =(H4-H5)/((B6-B7)*B4) 0.6
d = 0.9 B =(B7*H4-B6*H5)/((B6-B7)*B9) 98.18
r = 0.1 C =I6*B4-I7 Rs. 21.82
R = 1.1
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
d1 =(LN(C1/C2)+(C5+(C3^2)/2)*C4)/(C3*(C4^0.5)) 0.7613
d2
=C6-C3*(C4^0.5) 0.5492
Equilibrium value of call
option now, C0
= C1*NORMSDIST(C6)-(C2/EXP(C5*C4))*NORMSDIST(C7) 9.61
 Exhibit 20.1
Loan Amortisation Schedule
Amount Amount
Principal
Outstanding Installmen Outstandin
Year Interest Repayme
in the t g at the
nt
Beginning End Given:
1 8,000,000 960,000 1,415,874 455,874 7,544,126 Loan interest
2 7,544,126 905,295 1,415,874 510,579 7,033,547 Rent per year
3 7,033,547 844,026 1,415,874 571,848 6,461,699 Increase in rent per annum after the
4 6,461,699 775,404 1,415,874 640,470 5,821,229 Net salvage value after 10 years
5 5,821,229 698,547 1,415,874 717,327 5,103,902 Required hurdle rate from the investm
6 5,103,902 612,468 1,415,874 803,406 4,300,496 Equity in the property
7 4,300,496 516,060 1,415,874 899,814 3,400,682 Loan on the property
8 3,400,682 408,082 1,415,874 ### 2,392,890 No.of equated annual instalements
9 2,392,890 287,147 1,415,874 ### 1,264,162
10 1,264,162 151,699 1,415,874 ### -12 Amount of equated annual instalmen

Exhibit 20.2 : Net Cash Flow

Rental Interest Principal

Post-tax Post-tax Net Cash
Income Payment Repayment

Year Rental Interest

Flow
Income Payment
A C D=(0.7C) E
B = (0.79A) F=(B-D-E)
1 1,600,000 1,264,000 960,000 672,000 455,874 136,126
2 1,680,000 1,327,200 905,295 633,707 510,579 182,915
3 1,764,000 1,393,560 844,026 590,818 571,848 230,894
4 1,852,200 1,463,238 775,404 542,783 640,470 279,985
5 1,944,810 1,536,400 698,547 488,983 717,327 330,090
6 2,042,051 1,613,220 612,468 428,728 803,406 381,086
7 2,144,153 1,693,881 516,060 361,242 899,814 432,825
8 2,251,361 1,778,575 408,082 285,657 1,007,792 485,125
9 2,363,929 1,867,504 287,147 201,003 1,128,727 537,774
10 2,482,125 1,960,879 151,699 106,190 1,264,175 590,515
an interest 12%
nt per year 1,600,000
rease in rent per annum after the first year 5%
t salvage value after 10 years 32,000,000
quired hurdle rate from the investment 14%
uity in the property 8,000,000
an on the property 8,000,000
.of equated annual instalements 10

mount of equated annual instalments 1,415,873.31

say 1,415,874

Net cash flow

Year including post tax
sale value

0 -8,000,000
1 136,126
2 182,915
3 230,894
4 279,985
5 330,090
6 381,086
7 432,825
8 485,125
9 537,774
10 32,590,515
IRR= 17.06%
 Exhibit 22.13 :Portfolio composition for Constant Mix and CPPI policies
Proportion of
stocks in the
portfolio in
Constant Mix Multiplier in CPPI
policy 50% 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)
CPPI policies

75,000
CPPI Policy
Bonds Total
50,000 100,000
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 Sharp
Fund return deviation Beta Measure Measure Jensen Measure M2 Measure
A 17.1 28.1 1.2 7.083 0.302 5.620 3.801
B 14.5 19.7 0.92 6.413 0.299 3.692 3.740
C 13 22.8 1.04 4.231 0.193 1.904 1.556
Market Index 11 20.5 1 2.400 0.117 0.000 0.000
Risk-free return 8.6 0 0
Formula used for getting Treynor measure in cell E2 = (B2-$B$6)/D2
Formula used for getting Sharp measure in cell F2 = (B2-$B$6)/C2
Formula used for getting Jensen measure in cell G2 = B2-($B$6+D2*($B$5-$B$6))
Formula used for getting M2 measure in cell H 2 = (($C$5/C2)*B2+(1-$C$5/C2)*$B$6)-$B$5
 Managed Portfolio
Return earned
Weight (percentage)
Stock component 0.60 3.567
Bonds component 0.25 1.24
Cash component 0.15 0.60

Exhibit 23.9
Bogey Performance and Excess Return

Return of Index
Benchmark During
Component Weight Month(percentage)
Stock(Nifty) 0.50 3.24
Bond (I Sec) 0.40 1.20
Cash (Money market) 0.10 0.60
Bogey return 2.16
Return on managed portfolio 2.54
Excess return of managed portfolio 0.38

Exhibit 23.10
Performance Attribution
A: Contribution of Asset Allocation to Performance
Excess Index
Asset Class Actual Weight Benchmark Weight Weight Return(%)
Stock 0.60 0.50 0.10 3.24
Bond 0.25 0.40 -0.15 1.20
Cash 0.15 0.10 0.05 0.60
Contribution of asset allocation
B. Contribution of Selection to Performance
Portfolio Excess
Performance( Index Performance( Portfolio
Asset Class %) Performance(%) %) Weight
Stock 3.567 3.24 0.327 0.600
Bond 1.24 1.20 0.040 0.250
Cash 0.6 0.60 0.000 0.150
Contribution of selection within asset classes

Exhibit 23.11
Sector Selection within the Stock Market

Difference in Sector
Sector Beginning of Month Weights(%) Weights Return(%)
Nifty Portfolio
Oil and gas 14.1 8.1 -6 2.55
Petrochemicals 12.1 6.5 -5.6 3
Energy 12.8 16.9 4.1 3.4
Telecom 10.3 12.5 2.2 3.6
Information Technology 9.2 1 -8.2 2.4
Financial Services 12.5 10.2 -2.3 2.2
Materials 6.8 14 7.2 4.1
Consumer goods 9.4 14 4.6 4.3
Capital goods 7 11.4 4.4 2.7
Others 5.8 5.4 -0.4 3.5
Nifty performance net of dividends(%) 3.1

Exhibit 23.12
Summary of Portfolio Attribution
Contribution(
Portfolio weight Basis Points)
Asset allocation 17.4
Selection
a. Stock excess return
i. Sector allocation 24.8
ii. Security allocation 7.9
32.7 0.60 19.6
b. Bond excess return 4.0 0.25 1.0
Total excess return 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
Allocation
Sector Over/Under Contribution(B
Performance asis Points)

-0.55 3.3
-0.1 0.56
0.3 1.23
0.5 1.1
-0.7 5.74
-0.9 2.07
1 7.2
1.2 5.52
-0.4 -1.76
0.4 -0.16
Total= 24.8