Every industry focuses primarily on the profit. The profit helps them paying the employees, staff and the workers, and helping them invest at new projects. That’s how the profit is shared within the unit. Let’s take a dig at the expenditure outside the unit. Discounts to the clients, loans, tie ups with marketers, etc and what not. The profit percentage seems to shrink at every step. Here is where experts like Ken Kremsky play their role.

Ken Kremsky takes a check on the cash flows from both the directions. He calculates the present value of the benefits and the interest they can coffer over the time. The technical term is Internal Rate of Return or the IRR, and it is designed to account for the time preference of the money and the investments done. As per this the return of an investment received at a given time is more worthy than the one received later. The value declines with time. Thus timing for the investment is necessary

Ken Kremsky has provided IRR model to various industries and they have been well appreciated. The calculations were perfect and his calculations have been p[roved flawless and exact. Here are a few ways his models were helpful:

Comparing profitability:

IRR helped to compare the profitability of the projects. Helped them understand the value of acquiring a new/old plant. The IRR helps the industries to estimate profits from each plant.

Valuing liabilities:

IRR indicated the value of the investment, thus helping them to make an investment.

Helps determining the Fixed Income:

The IRR model developed by Ken helps the industries to determine the Yields-to-maturity. This helps determine the discount rate availed with the bonds.

Helps maximizing the net present value:

The internal Rate of return indicates the net value added by making an investment. The investment where the IRR is more than the Cost of the capital, offers positive Net present value. The other way affects the profits of the industry adversely.

Determining partner’s performance:

Private equity is one place which highly relies on IRR. The Investment Managers can see this as a measure of the general partner’s performance. The general partner controls the cash flows and thus it turns out really important.

About Ken Kremsky

Ken Kremsky is the Senior Financial Manager of Mondelez International, New Jersey. He carries a twenty plus years of experience at managing finances and cost accounting. He has his MBA in Finance in 2005.

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