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Profitability/financial models
With a few exceptions, profitability
model output is on an absolute
profit/profitability scale and allows
absolute go/no-go decisions.
Profitability models ignore all
nonmonetary factors except risk.
Despite wide use, financial models rarely
include nonfinancial outcomes in their
benefits and costs.
Taking an example of weighted factor scoring model for selecting a mutual fund.
Criteria
Weights
Risk-to-return
10
0.4
ratio
Expense ratio
5
0.2
Bond duration
7
0.28
Manager tenure 3
0.12
Total
25
1
http://www.investing-in-mutual-funds.com/
Criteria
Risk-to-return
ratio
Expense ratio
Bond duration
Description
The coefficient of variation of a fund's standard deviation
divided by its return.
The percentage of assets deducted each fiscal year for fund
expenses.
The weighted average time to maturity based on the present
value of the cash flow expected from the bond discounted at the
bond's current yield to maturity.
Manager tenure
The length of time a mutual fund has been under the guidance
of the current manager.
The above model fits both profitability and scoring model as it takes into
consideration accounting and financial tools like present value of cash flow along
with nonfinancial criteria like manager tenure.
Chpt 2, 18. Contrast the window-of-opportunity approach with discovery driven
planning.
window-of-opportunity
Given some idea for a new product or
process; cost, timing, and performance
specifications that must be met by this
new technology are determined before
any R & D is undertaken.