Finance / July 16, 2018 / Alicia Franklin
Daily compounding interest refers to when an account adds the interest accrued at the end of each day to the account balance so that it can earn additional interest the next day and even more the next day, and so on. To calculate daily compounding interest, divide the annual interest rate by 365 to calculate the daily rate. Add 1 and raise the result to the number of days interest accrues. Subtract 1 from the result and multiply by the initial balance to calculate the interest earned.
Working capital is not mandatory to be put inside the financial statements. It is the measure of the liquidity of the firm and it gives us ideas about how well a company can meet its current obligations.
Cost of debt generally refers to the effective paid by a company on its debts. The cost of debt can be calculated in either before or after tax returns. However, the interest expense being deductible, the after tax cost is considered very often. Moreover, the cost of debt is one part of capital structure of the company and also includes the cost of equity.
The enterprise value (EV) of the business is calculated by discounting the unlevered free cash flows (UFCFs) projected over the projection period and the terminal value calculated at the end of the projection period to their present values using the chosen discount rate (WACC).
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