One of the most commonly used financial functions is the FUTURE VALUE EQUATION which tells the user what their investment’s value will be at a certain point of time at a certain rate.

The FUTURE VALUE EQUATION is:

F=P(1+i)

Where F = the future value of the investment,
P = the present value of the investment, or the amount being initially invested,
and i = the interest rate at which the investment is growing.

For a simple example say that a bank offers a 4% interest rate paid annually for a savings account. In the example you decide to put $100 in this savings account. You are curious how much your $100 will be worth in a year from having been in this savings account so you use the FUTURE VALUE EQUATION to calculate it:

F=100(1+.04)=$104

This is a very simple equation and most real world investments are more complicated. Many savings accounts are compounded, meaning that interest is added to the interest already applied in the account, as this example would be if you chose to leave the $104 in the savings account for another year. There are also other variables to be aware of when calculating future value for varying investments. This also does not factor in the time-value of money.

When an investor wishes to know what the value of their investment will be as it is compounded over a certain period of time they will use the function that gives them the COMPOUNDED INTEREST of the FUTURE VALUE of their investment.

The equation is expressed as follows:

The formula is defined as:
F = the future value of the investment,
P = the present value of the investment, or the amount being initially invested,
i = the interest rate at which the investment is growing,
and
n = the number of periods that the investment is being compounded.

For an example say that a bank offers a 4% interest rate paid monthly for a savings account. In the example you decide to put $100 in this savings account. You are curious how much your $100 will be worth in a year from having been in this savings account if you do not take any money out, so you use the FUTURE VALUE EQUATION with COMPOUNDING INTEREST to calculate it:

The earnings of interest on interest is defined as COMPOUND INTEREST and this equation is a simple way to calculate the value of an investment being compounded minus other variables such as the time-value of money.

Historical Volatility (HV) is used to see the volatility of a security over a period of time. Usually the higher the Historical Volatility the more risky the investment.

Historical Volatility (HV) can be calculated using the following equation:

HV = (52 week high of the security - 52 week low of the security)/Average(52 week high of the security + 52 week low of the security)

Enterprise Value (EV) is essentially what it would cost you to own an existing company. It is the company’s takeover value. The equations is as follows:

EV = Market value of common stock + the company’s debt + minority interest + preferred shares - the company’s cash

Simply think if you were to try to buy the company. You would need to buy the stock of the company, pay off the company’s debt, and you would acquire the company’s cash by owning it. ENTERPRISE VALUE is an excellent measure of a company’s true value.