Compounding effect and Pro-forma: Difference between pages

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imported>Doug Williamson
(Create page: Source The Group Treasurer: an ACT Guide to the first 100 days, Page 31)
 
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The additional growth or additional interest, resulting from the compounding effects of - for example - interest on interest.
1. ''Financial reporting.''


Used to describe financial results which are not finalised, but give an idea of what is expected before the real results are known.


For example, interest quoted at 6% per annum, compounded annually, for two years maturity, means that the interest accumulated after two years is:


= [1.06 x 1.06] - 1
2. ''Invoice.''


= 12.36% for the two year period.
A list of things that have been ordered, sent with their prices to a customer so that they can be paid for before they are delivered.




Without the additional interest on interest, the total interest would have been simply
3. More generally, a letter, document or template that is created as an example to show how others of the same type should be written or prepared.


6% per annum x 2 years


= 12.00%.
Also written as Pro forma.




So the compounding effect of interest on interest here
==See also==
* [[Financial reporting]]
* [[Invoice]]


= 12.36% - 12.00%
[[Category:The_business_context]]
 
= 0.36% over the two year period (= 6% x 6%).
 
 
When both the number of periods and the rate of growth/interest are low, compounding effects are relatively small.
When either the number of periods or the rate of growth/interest - or both - are greater, compounding effects become very much larger.
 
 
== See also ==
* [[Compound interest]]
* [[Compounding factor]]
* [[Continuously compounded rate of return]]
 
[[Category:Manage_risks]]

Revision as of 14:12, 14 October 2020

1. Financial reporting.

Used to describe financial results which are not finalised, but give an idea of what is expected before the real results are known.


2. Invoice.

A list of things that have been ordered, sent with their prices to a customer so that they can be paid for before they are delivered.


3. More generally, a letter, document or template that is created as an example to show how others of the same type should be written or prepared.


Also written as Pro forma.


See also