M.Peer Mohamed Sardhar

10 calculations to you must know

Compound Interest
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.

Compound Annualised Growth Rate
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] � 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.

Internal Rate of Return
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell.
Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in �18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter.

XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR's. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment

Post-Tax Return
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI � (ROI * TR)=Post-tax return
Type in: =10 � (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)

Pre-Tax Yield
An investment's pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF's 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)

The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.

Purchasing Power
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount

Real Rate of Return
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here).

Doubling, Tripling of Money
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.

From India, Coimbatore
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Peer Mohammed Sir, i just saved this page so that i can refer to it later..also i currently pursuing my MBA from Mumbai Unniversity..my second sem specilisation has just started..and i would like to the current HR trends..i would also like to know what are the above formulas used for..and are they used by a general HR person or by seprate HR manager..
i am sorry if i dint used the correct Job Title...
please if u can hep me on this..
i really wanna know about it..
Thanking you in adavnce for your help...
if you want you can also mail me on
kip smiling

From India, Madras

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