Interest income

If money is borrowed, interest must be paid over the time period if money is loaned out, interest income is expected to accumulate. In other words, there is a time value associated with the money. Before money flows from different years can be combined, a compound interest factor must be employed to translate all of the flows to a common present time. The present is arbitrarily assumed often it is either the beginning of the venture or start of production. If future flows are translated backward toward the present, the discount factor is of the form (1 + i) , where i is the annual discount rate in decimal form (10% = 0.10) and n is the number of years involved in the translation. If past flows are translated in a forward direction, a factor of the same form is used, except that the exponent is positive. Discounting of the cash flows gives equivalent flows at a common time point and provides for the cost of capital. 

Obviously, revenue is money coming into the company from the sale of goods or services, from rental fees, from interest income, etc. The profit equation shows that an increase in revenue leads to a direct increase in profit, and vice versa if all other revenues and expenses are held constant. Note that we are going to assume that the condition of other expenses/revenues are held constant in the discussions below. 

Ecosystem services are closely linked with the existence of natural capital, discussed in Section 4.5, in much the same way that interest income is linked to a financial asset. In either case, a given amount of the asset, sometimes generically referred to as the stock, generates a certain flow of benefits, while increasing or decreasing the amount of the asset, which, in turn, changes that asset s capacity to generate benefits. 

Notes NM = not meaningful DBF = deficit. Revenues include product sales, contract research, royalty, and interest income. Profit margin represents after-tax income as percentage of revenues. 

Cash flow is simply the cash that is expected to be received in the future from owning a financial asset. For a fixed-income security, it does not matter whether the cash flow is interest income or repayment of principal. A security s cash flows represent the sum of each period s expected cash flow. Even if we disregard default, the cash flows for some fixed-income securities are simple to forecast accurately. Noncallable benchmark government securities possess this feature since they have known cash flows. For benchmark government securities, the cash flows consist of the coupon interest payments every year up to and including the maturity date and the principal repayment at the maturity date. 

Interest coverage the level of net interest income on the portfolio (i.e., after defaults) must be sufficient to cover interest due on the liabilities. 

Operating profit (EBIT) - Interest - Income taxes = Net profit... 

Because bonds typically have a predictable stream of payments of interest and repayment of principal, many people invest in them to receive interest income or to preserve and to accumulate capital. If you are looking for current income, you will most likely be interested in bonds that pay an interest rate that stays fixed until maturity with interest that is paid semiannually. However, if you are saving for retirement or a child s education or other capital accumulation goal, you may wish to consider investing in zero coupon bonds which do not have periodic interest payments. Instead, they are sold at a substantial discount from their face amount and the investor receives one payment— at maturity—that is equal to the purchase price (principal) plus the total interest earned, compounded semiannually at the original interest rate. 

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