Ch-04 (Review and Evaluating Firm Financial Performance)

Pemahaman
1
Manajemen Keuangan
(Financial Management)
(Sanyoto Gondodiyoto)
Financial Markets
• Primary Market
– Issuance of a security for the first time
• Secondary Markets
– Buying and selling of previously issued
securities
– Securities may be traded in either a dealer or
auction market.
Financial Markets
Stocks and Investors

Bonds
Firms securities
Money Bob Sue
money
Primary Market
Secondary
Market
The Firm and the Financial
Markets
Firm Firm issues securities (A) Financial
markets
Invests
in assets Retained
cash flows (F)
(B)
Short-term debt
Current assets Cash flow Dividends and Long-term debt
Fixed assets from firm (C) debt payments (E)
Equity shares
Taxes (D)
The cash flows from

Ultimately, the firm
must be a cash the firm must exceed
Government the cash flows from
generating activity.
the financial markets.
Career Opportunities in Finance
• Money and capital markets
• Investments
• Financial management
The Responsibility of Finance Staff is to
Maximize stock value by:
– Forecasting and planning
– Investment and financing decisions
– Coordination and control
– Transactions in the financial markets
– Managing risk
What is Corporate Finance?
Investment in assets that should be
matched by an equal of cash raised
by financing
Beberapa istilah yang penting:
 Capital budgeting
 Capital structure
 Net Working Capital.
Basic Valuation Model
CF1 CF2 CFn

Value  1
 2
  n
(1  k) (1  k) (1  k)
n
CFt
 t
.
t 1 (1  k)
Basic Valuation Model
• To estimate an asset’s value, one
estimates the cash flow for each period t
(CFt), the life of the asset (n), and the
appropriate discount rate (k)
• Throughout the course, we discuss how to
estimate the inputs and how financial
management is used to improve them and
thus maximize a firm’s value.
The Corporation and
Financial Markets
Corporation cash Investors

securities
reinvest
Secondary
markets
dividends,
Cash flow etc.
tax
Government
Financial Statements
Sekarang marilah kita mempersiapkan
laporan keuangan yang merefleksikan
seluruh transaksi yang telah kita catat.
1. Rugi/Laba (Income Statement)

2. Laporan Perubahan Modal
(Statement of Owner’s Equity)
3. Neraca (Balance Sheet)
4. Laporan Arus Kas (Statement of
Cash Flows)
Income Statement
Pendapatan:
Pendapatan Jasa $8,500
Biaya:
Gaji $1,200
Utilitas termasuk telepon 400
Sewa Peralatan Komputer 400
Sewa Peralatan Kantor 1,100 3,100
Laba Bersih $5,400
11
Statement of Equity
Modal Binus, April 1, 20xx $ 0

Penambahan Modal 30,000
Laba Bersih $ 5,400
Prive – 2,100
Modal Binus, April 30, 20xx $33,300
Balance Sheet
Aktiva Passiva
Kas $ 20,000 Hutang Dagang $ 200
Piutang Dagang 2,000 Modal Pemilik,
Perlengkapan 500 Tn. Binus 33,300
Tanah & Kantor 11,000 Total Hutang dan
Total Aktiva $ 33,500 Modal Pemilik $33,500
Cash Flow
Arus Kas dari Aktivitas Operasi:
Penerimaan Kas dr jasa $6,500
Pengeluaran Kas:
Perlengkapan $ 300
Biaya Operasi 3,100 3,400
Arus Kas Bersih dari
Aktivitas Operasi $3,100
Arus Kas dari aktivitas investasi
Pembelian dan Penjualan Tanah ($11,000
Cash-flow
Arus Kas dari Aktivitas Pembiayaan:

Saldo Awal 0
Investasi Pemilik $30,000
Prive 2,100
Arus Kas bersih dr aktivitas pembiayaan $27,900
Saldo Kas awal 0
Saldo Kas Akhir $20,000
V. Accounting Equation
Assets = Liabilities + Equity
Liabilities &
Assets Equity
Assets
Cash
Accounts Notes
Receivable Receivable
Resources
owned or
Vehicles
controlled
Land
by a
company
Store Buildings
Supplies
Equipment
Liabilities
Accounts
Notes Payable
Payable
Debts or
obligations
(Creditors'
claims on
Taxes assets) Wages
Payable
Payable
Equity
Owner Owner
Investments Withdrawals
Owner’s
claims
on
assets
Revenues Expenses
Expanded Accounting Equation
Assets = Liabilities + Equity
_ Owner _
Owner Capital
Withdrawals + Revenues Expenses
Ch. 3
Evaluating a Firm’s Financial
Performance
 2002, Prentice Hall, Inc.

Learning Objectives
1. Explain the purpose and importance of
financial analysis.
2. Calculate and use a comprehensive set of
measurements to evaluate a company’s
performance.
3. Describe the limitations of financial ratio
analysis.
Keown, Martin, Petty - Chapter 4 22

Financial Management Axioms
1) Risk - return trade-off
2) Time value of money
3) Cash - not profits - is king
4) Incremental cash flows count
5) The curse of competitive markets
6) Efficient capital markets
7) The agency relationship/ problem
8) Taxes bias business decisions
9) All risk is not equal
10) Ethical dilemmas are everywhere in finance
Principles/Axiomas
Used
Principles Used in this Chapter
• Principle 1:
– The Risk Return Trade-Off – We won’t take on additional risk
unless we expect to be compensated with additional return.
• Principle 5:
– The Curse of Competitive Markets – Why it is hard to find
exceptionally profitable markets.
• Principle 7:
– Managers won’t work for the owners unless it is in their best
interest.

Financial Ratios
Financial Ratios
• A popular way to analyze financial statements is by
computing ratios. A ratio is a relationship between
two numbers, e.g. If ratio of A:B = 30:10==> A is 3
times B.
• A ratio by itself may have no meaning. Hence, a
given ratio is compared to:
– (a) ratios from previous years – internal time series
analysis
– (b) ratios of other firms/leaders in the same industry –
external cross-sectional analysis

Uses of Financial Ratios
• Identify deficiencies in a firm’s performance and take
corrective action.
• Evaluate employee performance and determine
incentive compensation.
• Compare the financial performance of different
divisions within the firm.
• Prepare, at both firm and division levels, financial
projections.
• Understand the financial performance of the firm’s
competitors.
• Evaluate the financial condition of a major supplier.
Uses of Financial Ratios:
Outside the Firm used by
• Lenders in deciding whether or not to make a
loan to a company.
• Credit-rating agencies in determining a firm’s
credit worthiness.
• Investors (shareholders and bondholders) in
deciding whether or not to invest.
• Major suppliers in deciding whether or not to
grant credit terms to a company.
Analyzing Financial Performance:
5 Key Questions
Analyzing Financial Performance:
5 Key Questions
1. How liquid is the firm?

2. Is management generating adequate
operating profits on the firm’s assets?
3. How is the firm financing its assets?
4. Is management providing a good return on
the capital provided by the shareholders?
5. Is the management team creating
shareholder value?
How Liquid Is a Firm?
• Liquidity measures the firm’s ability to

pay its bills on time.
• It indicates the ease with which non-
cash assets can be converted to cash,
and also the ratio of non-cash assets
to current liabilities.

How Liquid Is a Firm?
Liquidity is measured by two
approaches:
– Comparing the firm’s current assets
and current liabilities
– Examining the firm’s ability to convert
accounts receivables and inventory
into cash on a timely basis
Measuring Liquidity: Approach 1
Compare a firm’s current assets

with current liabilities
–Current Ratio
–Acid Test or Quick Ratio

Current Ratio
• Compares cash and current assets that
should be converted into cash during the
year with the liabilities that should be paid
within the year
• Formula: = Current assets/Current liabilities
Davies Example:
= $143M / $64M
= 1.67
Interpretation (Current ratio)
• Davies has $2.23 in current assets

for every $1 in current liabilities.
• The average is higher than the peer
group’s ratio of 1.80.

Acid Test or Quick Ratio
• Compares cash and current assets (minus
inventory) that should be converted into cash
during the year with the liabilities that should
be paid within the year.
• Formula: = Cash and accounts
receivable/Current liabilities
Davies Example
= ($20M + $36M) / $64M = 0.88
Interpretation (Quick Ratio)
• Davis has 88 cents in quick assets for

every $1 in current liabilities.
• Davis is less liquid compared to its
peers that have 94 cents for every $1
in current liabilities.

Measuring Liquidity: Approach 2
Measures a firm’s ability to convert

A/R and inventory into cash
–Average Collection Period
–Accounts Receivable Turnover
–Inventory Turnover
–Cash Conversion Cycle
Average Collection Period
• How long does it take to collect the firm’s
receivables?
• Formula: Accounts receivable/(Annual credit
sales/365)
Davies Example:
= $36M / ($600M/365)= 21.9 days
• Davis is faster than peers (25 days) in collecting
the accounts receivable.
Inventory Turnover
• How many times is inventory rolled over per year?

• Formula: = Cost of goods sold/Inventory
Davies Example
= $460M / $84M = 5.48 times
• # of days = 365/Inventory turnover
= 365/5.48 = 67 days
• Thus Davis carries the inventory for longer time than its
competitors (Competitors = 365/7 = 52 days).

Davis vs. Peer Group: Question #1
Summary
Ratio Davis Peers

Current 1.67 1.80
Ratio
Quick .88 .94
Ratio
Avg. Collection 21.9 25
Period
Inventory 5.48 (67) 7 (52)
Turnover (days in
inventory)

Are the Firms’ Managers Generating
Adequate Operating Profits on the Firm’s
Assets?
• This question focuses on the profitability of

the assets in which the firm has invested. We
will consider the following ratios to answer
the question:
– Operating Return on Assets
– Operating Profit Margin
– Total Asset Turnover
– Fixed Asset Turnover
Operating Return on Assets
• Indicates level of operating profits relative to the

firm’s total assets
• Formula: = Operating return/Total assets
Davies Example
= $75M / $438M = .171 or 17.1%
• Thus managers are generating 17.1 cents of operating profit

for every $1 of assets (peer group average = 17.8)

Dis-aggregation of Operating
Return on Assets
• Operating return on assets = operating
profits/total assets
= operating profit/sales * sales/assets
=operating profit margin * total asset turnover

Managing Operations: Operating
Profit Margin
• Examines how effective the company is in managing

its cost of goods sold and operating expenses that
determine the operating profit.
• Formula: = Operating profit/Sales
Davies Example
=$75M / $600M = .125 or 12.5%
• Davies managers are not as good as peers in managing the
cost of goods sold and operating expenses, as the average for
peers is higher at 15.5%

Managing Assets:
Total Asset Turnover
• How efficiently a firm is using its assets in generating
sales
• Formula: = Sales/Total assets
Davies Example
= $600M / $538M = 1.37X
• Davies is generating $1.37 in sales for every $1 invested in
assets, which is higher than the peers average of $1.15.

Managing Assets:
Fixed Asset Turnover
• Examines efficiency in generating sales from
investment in “fixed assets”
• Formula: = Sales/Fixed assets
Davies Example
= $600M / $295M = 2.03X
• Davies generates $2.03 in sales for every $1
invested in fixed assets (peer group average = $1.75)

Davies vs. Peer Group:
Question #2 Summary
Ratio Davies Peer

Operating Return 17.1% 17.8%
on Assets
Operating Profit 12.5% 15.5%
Margin
Total Asset 1.37x 1.15x
Turnover
Fixed Asset 2.03x 1.75x
Turnover

How Is the Firm
Financing Its Assets?
• Here we examine the question: Does the firm
finance its assets by debt or equity or both?
We use the following two ratios to answer the
question:
– Debt Ratio
– Times Interest Earned

Debt Ratio
• This ratio indicates the percentage of the firm’s assets

that are financed by debt (implying the balance is
financed by equity).
• Formula: Total debt/Total assets
Davies Example
= $235M / $438M = .54 or 54%
• Davies finances 54% of firm’s assets by debt and 46% by equity.

This ratio is higher than peer average of 35%.

Times Interest Earned
• This ratio indicates the amount of operating income

available to service interest payments
• Formula: = Operating income/Interest
• Davies Example
=$75M / $15M = 5.0X
• Davies operating income are 5 times the annual interest expense or

20% of the operating profits goes towards servicing the debt.

Davies vs. Peer Group:
Question #3 Summary
Ratio Davies Peers

Debt Ratio 54% 35%
Times Interest 5X 7X
Earned

Are the Firm’s Managers Providing a
Good Return on the Capital Provided by
the Shareholders?
• Are the earnings available to shareholders
attractive? This is analyzed by computing the firm’s
accounting return on common stockholder’s
investment or return on equity (ROE).
• Formula:= Net income/Common equity
• Note, common equity includes both common stock

and retained earnings

ROE
Davies Example
ROE = $42M / $203M
= .207 or 20.7%
• Owners of Davies are receiving a higher return (20.7%)

compared to the peer group (18%).
• One of the reasons for higher ROE for Davies is the
higher debt used by Davies. Higher debt translates to
higher ROE under favorable business conditions.

Question #4 Summary:
Davies vs. Peer Group
Ratio Davies Peers

Return on 12.9% 12.0%
Equity

Are the Firm’s Management Creating
Shareholder Value?
• We can use two approaches to answer this question:
– Market value ratios (P/E)
– Economic Value Added (EVA)
• These ratios indicate what investors think of
management’s past performance and future
prospects.

Price/Earnings Ratio
• Measures how much investors are willing to pay for
$1 of reported earnings
• Formula: Price per share/Earnings per share
• Davies Example
=$32.00 / $2.10 = 15.24X
• Investors are willing to pay less for Davies for every dollar
of earnings compared to peers ($15.24 for Davies versus
$19 for peers)

Price/Book Ratio
• Compares the market value of a share of stock to the
book value per share of the reported equity on the
balance sheet.
• Formula: = Price per share/Equity book value per
share
• Davies Example
= $32.00 / $10.15= 3.15X
• A ratio greater than 1 indicates that the shares are more valuable
than what the shareholders originally paid. However, the ratio is
lower than the S&P average of 3.70.
Economic Value Added (EVA)
• How is shareholder value created?

– If the firm earns a return on capital that is greater than the
investors’ required rate of return.
• EVA attempts to measure a firm’s economic profit,

rather than accounting profit.
• EVA recognizes a cost of equity in addition to the cost of
debt (interest expense).

EVA: Formula
• EVA = (r-k) X A
where:
r = Operating return on assets
k = Total cost of capital
A = Amount of capital (or Total Assets)

EVA Example
• A firm has total assets of $5,000 and has raised money
from both debt and equity in equal proportion. Further,
assume that cost of debt is 8% and the cost of equity is
16%. Assume the firm earns 17% operating income on
its investments.
• EVA = (17%-12%)* $5,000 = $250
• Where, cost of capital

= .5*(8%) + .5*(16%) = 12%

Question #5 Summary:
Davies vs. S&P/Peers
Ratio Davies
Price/Earnings 15.24X 19X
Ratio (Peers)
Price/Book Ratio 3.15X 3.7X
(S&P 500)

4. Limitations of
Financial Ratio Analysis
Limitations of Financial Ratio
Analysis
1. Difficult to identify industry categories or comparable peers.
2. Published peer group or industry averages are only

approximations.
3. Industry averages may not provide a desirable target ratio or

norm.
4. Accounting practices differ widely among firms
5. A high or low ratio does not automatically lead to a specific

favorable or unfavorable conclusion.
6. Seasons may bias the numbers in the financial statements.

Financial Ratios
• Tools that help us determine the
financial health of a company.
• We can compare a company’s
financial ratios with its ratios in
previous years (trend analysis).
• We can compare a company’s
financial ratios with those of its
industry.
Example:
CyberDragon
Corporation
CyberDragon’s
Balance Sheet ($000)
Assets: Liabilities & Equity:

Cash $2,540 Accounts payable 9,721
Marketable securities 1,800 Notes payable 8,500
Accounts receivable 18,320 Accrued taxes payable 3,200
Inventories 27,530 Other current liabilities 4,102
Total current assets 50,190 Total current liabilities
25,523
Plant and equipment 43,100 Long-term debt (bonds)
22,000
less accum deprec. 11,400 Total liabilities 47,523
Net plant & equip. 31,700 Common stock ($10 par) 13,000
Total assets 81,890 Paid in capital 10,000
Retained earnings 11,367
Sales (all credit) $112,760
CyberDragon’s
Cost of Goods Sold (85,300)
Income Statement
Gross Profit 27,460
Operating Expenses:
Selling (6,540)
General & Administrative (9,400)
Total Operating Expenses (15,940)
Earnings before interest and taxes (EBIT) 11,520
Interest charges:
Interest on bank notes: (850)
Interest on bonds: (2,310)
Total Interest charges (3,160)
Earnings before taxes (EBT) 8,360
Taxes (assume 40%) (3,344)
Net Income 5,016
CyberDragon
Other Information
Dividends paid on common stock $2,800

Earnings retained in the firm 2,216
Shares outstanding (000) 1,300
Market price per share 20
Book value per share 26.44
Earnings per share 3.86
Dividends per share 2.15
1. Liquidity Ratios
• Do we have enough liquid

assets to meet approaching
obligations?
What is CyberDragon’s Current
Ratio?
Ratio?
50,190
25,523 = 1.97
Ratio?
50,190
25,523 = 1.97
If the average current ratio for the

industry is 2.4, is this good or not?
What is the firm’s Acid Test Ratio?
50,190 - 27,530
25,523 = .89
50,190 - 27,530
25,523 = .89
Suppose the industry average is .92.

What does this tell us?
What is the firm’s Average
Collection Period?
Collection Period?
18,320
= 59.3 days
112,760/365
Collection Period?
18,320
= 59.3 days
112,760/365
If the industry average is 47 days,

what does this tell us?
2. Operating Efficiency Ratios
• Measure how efficiently the

firm’s assets generate
operating profits.
What is the firm’s Operating
Income Return on Investment
(OIROI)?
(OIROI)?
11,520 = 14.07%
81,890
(OIROI)?
11,520 = 14.07%
81,890
•Slightly below the industry

average of 15%.
(OIROI)?
11,520 = 14.07%
81,890
•Slightly below the industry

average of 15%.
•The OIROI reflects product
pricing and the firm’s ability to
keep costs down.
What is their Operating Profit
Margin?
Margin?
11,520
112,760 = 10.22%
Margin?
11,520
112,760 = 10.22%
•This is below the industry average of

12%.
What is their Total Asset
Turnover?
Turnover?
112,760
81,890 = 1.38 times
Turnover?
112,760
81,890 = 1.38 times
The industry average is 1.82 times.

The firm needs to figure out how to
squeeze more sales dollars out of
its assets.
What is the firm’s Accounts
Receivable Turnover?
112,760
18,320 = 6.16 times
112,760
18,320 = 6.16 times
CyberDragon turns their A/R over 6.16

times per year. The industry average
is 8.2 times. Is this efficient?
What is the firm’s Inventory
Turnover?
Turnover?
85,300
27,530 = 3.10 times
Turnover?
85,300
27,530 = 3.10 times
CyberDragon turns their inventory

over 3.1 times per year.
Is this efficient?
Low inventory turnover:
The firm may have too much

inventory, which is
expensive because:
• Inventory takes up costly
warehouse space.
• Some items may become
spoiled or obsolete.
What is the firm’s Fixed Asset
Turnover?
Turnover?
112,760
31,700 = 3.56 times
Turnover?
112,760
31,700 = 3.56 times
If the industry average is 4.6 times, what

does this tell us about CyberDragon?
3. Leverage Ratios
(financing decisions)
• Measure the impact of using
debt capital to finance assets.
• Firms use debt to lever
(increase) returns on common
equity.
How does Leverage work?
• Suppose we have an all equity-
financed firm worth $100,000.
Its earnings this year total
$15,000.
ROE =
(ignore taxes for this example)

• Suppose we have an all equity-
financed firm worth $100,000.
Its earnings this year total
$15,000.
15,000
ROE = 100,000 =
15%
• Suppose the same $100,000 firm
is financed with half equity, and
half 8% debt (bonds). Earnings
are still $15,000.
ROE =
are still $15,000.
ROE =15,000 - 4,000

=
50,000
are still $15,000.
ROE =15,000 - 4,000

= 22%
50,000
What is CyberDragon’s Debt
Ratio?
Ratio?
47,523
81,890 = 58%
Ratio?
47,523
81,890 = 58%
If the industry average is 47%, what

does this tell us?
Ratio?
47,523
81,890 = 58%
If the industry average is 47%, what

does this tell us?
Can leverage make the firm more

profitable?
Can leverage make the firm riskier?
What is the firm’s Times
Interest Earned Ratio?
11,520
3,160 = 3.65 times
11,520
3,160 = 3.65 times

This
is further evidence that the firm uses
more debt financing than average.
4. Return on Equity
How well are the firm’s

managers maximizing
shareholder wealth?
What is CyberDragon’s
Return on Equity (ROE)?
5,016
34,367 = 14.6%
5,016
34,367 = 14.6%
The industry average is

17.54%.
5,016
34,367 = 14.6%
The industry average is

17.54%.
Is this what we would expect,
given the firm’s leverage?
Conclusion:
• Even though CyberDragon

has higher leverage than the
industry average, they are
much less efficient, and
therefore, less profitable.
The DuPont Model
Brings together:
• Profitability
• Efficiency
• Leverage
The DuPont Model
Net Profit Total Asset
ROE =
Debt
x / (1-
Margin Turnover Ratio
)
The DuPont Model
ROE =
Debt
x / (1-
)
Net Income Sales Total
Debt
= Sales x Total Assets /(1- Total
Assets
)
The DuPont Model
ROE =
Debt
x / (1-
)
Debt
Assets
)
5,016 112,760 47,523
112,760 81,890 81,890
= x / (1 -
The DuPont Model
ROE =
Debt
x / (1-
)
Debt
Assets
)
5,016 112,760 47,523
112,760 81,890 81,890
= x / (1 -
Terminologies
 Agency Relationship
 Agency Problem
 Agency Cost
Capital bu8dgeting
 Capital structure
 Net Wrkinh capoital
 Auction market
 dealer market.
 Stockholder, Stakeholder

Terminologies
 Capital markets/ Money markets
 Primary markets
 Secondary markets
 Listing
 Stock/ saham
 Bond/ Obligasi
 Sukuk.
 Dividend
Capital gain
Terminologies
 General partnership
 Limited partnership
 Dividend policy
 Over-the-counter (OTC)
 NASDAQ (National Association of
Securities Dealer Automated Quotation),
Dow Jones Rating (nama pembuat index),
LQ-45, Kompas-100
 IHSG
TERIMA
KASIH…

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Pemahaman

Stocks and Investors

The cash flows from

CF1 CF2 CFn

Corporation cash Investors

1. Rugi/Laba (Income Statement)

Modal Binus, April 1, 20xx $ 0

Arus Kas dari Aktivitas Pembiayaan:

Assets = Liabilities + Equity

Assets = Liabilities + Equity

 2002, Prentice Hall, Inc.

Keown, Martin, Petty - Chapter 4 22

Keown, Martin, Petty - Chapter 4 25

Keown, Martin, Petty - Chapter 4 27

1. How liquid is the firm?

• Liquidity measures the firm’s ability to

Keown, Martin, Petty - Chapter 4 32

Compare a firm’s current assets

Keown, Martin, Petty - Chapter 4 34

• Davies has $2.23 in current assets

Keown, Martin, Petty - Chapter 4 36

• Davis has 88 cents in quick assets for

Keown, Martin, Petty - Chapter 4 38

Measures a firm’s ability to convert

• How many times is inventory rolled over per year?

Keown, Martin, Petty - Chapter 4 43

Ratio Davis Peers

Keown, Martin, Petty - Chapter 4 44

• This question focuses on the profitability of

• Indicates level of operating profits relative to the

• Thus managers are generating 17.1 cents of operating profit

Keown, Martin, Petty - Chapter 4 46

Keown, Martin, Petty - Chapter 4 47

• Examines how effective the company is in managing

Keown, Martin, Petty - Chapter 4 49

Keown, Martin, Petty - Chapter 4 50

Keown, Martin, Petty - Chapter 4 51

Ratio Davies Peer

Keown, Martin, Petty - Chapter 4 52

Keown, Martin, Petty - Chapter 4 53

• This ratio indicates the percentage of the firm’s assets

• Davies finances 54% of firm’s assets by debt and 46% by equity.

Keown, Martin, Petty - Chapter 4 54

• This ratio indicates the amount of operating income

• Davies operating income are 5 times the annual interest expense or

Keown, Martin, Petty - Chapter 4 55

Ratio Davies Peers

Keown, Martin, Petty - Chapter 4 56

• Note, common equity includes both common stock

Keown, Martin, Petty - Chapter 4 57

• Owners of Davies are receiving a higher return (20.7%)

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Ratio Davies Peers

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• How is shareholder value created?

• EVA attempts to measure a firm’s economic profit,

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• EVA = (17%-12%)* $5,000 = $250

• Where, cost of capital

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