Financial Markets and Instruments

A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. 

To calculate the present value of real cash flows, one must use a real discount rate, which excludes the effects of inflation. Using a money (nominal) discount rate would be appropriate only for nominal cash flows.

The precautionary motive is one of the three motives for liquidity preference identified by Keynes, representing the need to hold cash for unforeseen or emergency expenses.

In the long run, all inputs are variable, allowing firms to adjust their scale of operations, enter or exit the market, and eliminate losses or excess profits to reach a state of normal profit.

Receivable turnover ratio = Net credits sale/ Average accounts receivable = 10
and average collection period  =360
receivables turnover ratio = 36
Hence a receivable turnover ratio of 10 implies that the credit sales are 10 times the average receivables or in other words receivables are generated 10 times during the year.

The formula for calculating the net present value (NPV) of an investment is NPV = FV - PV, where FV is the future value, PV is the present value, and n is the number of compounding periods.

The formula for calculating the payback period of an investment is Payback Period = Initial Investment / Annual Cash Flow, where Initial Investment is the initial cost of the investment, and Annual Cash Flow is the annual net cash flow generated by the investment.

The formula for calculating the breakeven point of an investment is Breakeven Point = Fixed Costs / (Selling Price - Variable Cost), where Fixed Costs are the fixed costs associated with the investment, Selling Price is the price at which the product or service is sold, and Variable Cost is the variable cost per unit sold.

The formula for calculating the Sharpe ratio of an investment is Sharpe Ratio = (Average Return - Risk-Free Rate) / Standard Deviation of Returns, where Average Return is the average return on the investment, Risk-Free Rate is the rate of return on a risk-free investment, and Standard Deviation of Returns is the standard deviation of the returns on the investment.

The formula for calculating the Treynor ratio of an investment is Treynor Ratio = (Average Return - Risk-Free Rate) / Beta, where Average Return is the average return on the investment, Risk-Free Rate is the rate of return on a risk-free investment, and Beta is the beta of the investment.

The formula for calculating the Jensen's alpha of an investment is Jensen's Alpha = Average Return - (Risk-Free Rate + Beta * Market Risk Premium), where Average Return is the average return on the investment, Risk-Free Rate is the rate of return on a risk-free investment, Beta is the beta of the investment, and Market Risk Premium is the difference between the expected return on the market portfolio and the risk-free rate.

The formula for calculating the information ratio of an investment is Information Ratio = (Average Return - Benchmark Return) / Standard Deviation of Excess Returns, where Average Return is the average return on the investment, Benchmark Return is the return on a benchmark portfolio, and Standard Deviation of Excess Returns is the standard deviation of the excess returns (investment return minus benchmark return).

The formula for calculating the Sortino ratio of an investment is Sortino Ratio = (Average Return - Minimum Acceptable Return) / Downside Risk, where Average Return is the average return on the investment, Minimum Acceptable Return is the minimum return that is considered acceptable, and Downside Risk is the standard deviation of the negative returns.

T-Bills are considered to be very low-risk investments, as they are backed by the full faith and credit of the government. However, there is a small risk of default if the government is unable to repay its debts.

T-Bills offer a number of advantages to investors, including low risk, a fixed rate of return, and high liquidity.