20. Return on Equity

Frugal Finance online courses offer a range of lessons aimed at understanding various financial evaluation procedures commonly used in corporate finance. These courses cover topics like project evaluation, cash flow analysis, decision-making criteria, and metrics such as Return on Equity, Net Present Value (NPV), Terminal Value, Salvage Value, and Internal Rate of Return (IRR).

Cost of Equity

The first lesson discusses the importance of estimating costs of equity, debt, and capital in corporate finance. It emphasizes the need to exceed the cost of capital as a minimum requirement for new investments. Students look at project evaluation procedures, including defining projects, evaluating returns, understanding salvage value, and evaluating different project options. The lesson uses case studies to show ideas like hurdle rates, cost of equity, and financing mix.

Accounting Earnings to Cash Flows

The transition from accounting earnings to cash flows is the focus of the second lesson. It explains the differences between these two measures and the adjustments needed to convert operating earnings into cash flows. Students understand factors like noncash charges, capital expenditures, and changes in noncash working capital that affect cash flow analysis.

The third lesson looks into financial decision-making practices related to project evaluation. It introduces various decision rules aligned with corporate finance goals and discusses the balance between subjective assessments and consistent evaluation.

Return on Equity

Return on Equity (ROE) is the main subject of the fourth lesson, along with NPV and discounted cash flow measures. Using case studies, students learn understanding into evaluating project viability and making informed financial decisions.

The fifth lesson covers critical ideas in financial analysis, focusing on cash flow projection procedures, NPV analysis, and the effects of the NPV rule in decision-making practices.

The final lesson looks at the Internal Rate of Return (IRR) as a metric for project evaluation. Students understand how to calculate IRR based on discounted cash flows and interpret results using real-world examples and NPV profiles. The lesson also addresses biases and limitations associated with IRR, including scenarios with multiple IRRs.