When evaluating the effectiveness investment projects theory, in some cases 1 , recommends using WACC as the discount rate. However, as a price equity it is proposed to use the profitability of alternative investments (projects). Alternative profitability (profitability) is a measure of lost profit, which, according to the concept of alternative costs based on the ideas of Friedrich von Wieser about the marginal utility of costs, is considered as an expense when evaluating options for investment projects intended for implementation. At the same time, a wide range of authors understand alternative income as the profitability of projects that have low risk and guaranteed minimum profitability. Examples are given - lease of land and buildings, foreign exchange bonds, term deposits banks, government and corporate securities with a low level of risk, etc.
Therefore, when evaluating two projects - analyzed A and alternative B, we must subtract the profitability of project B from the profitability of project A and compare the result with the profitability of project B, but taking into account risks.
This method allows us to make more intelligent decisions about the feasibility of investing in new projects.
For example:
The profitability of project A is 50%, the risk is 50%.
The profitability of project B is 20%, the risk is 10%.
Let us subtract from the profitability of project A the profitability of project B. (50% - 20% = 30%).
Now let's compare the same indicators, but taking into account the risks of projects.
Profitability of project A = 30% * (1-0.5) = 15%.
Profitability of project B - 20% * (1-0.1) = 18%.
Thus, wanting to get an additional 15% return, we risk half of our capital invested in the project. At the same time, by implementing the usual, and therefore low-risk projects, we guarantee ourselves an 18% return and, as a result, the preservation and increase of capital.
The approach to investment assessment described above, based on the theory of opportunity costs, is quite reasonable and is not rejected by practitioners.
But, can alternative incomes be considered as capital expenditures when calculating WACC?
In our opinion, no? Despite the fact that we subtracted the income of the alternative project B from the income of the evaluated project A, conditionally considering them as the expenses of the project A, they did not cease to be income.
The calculation considered in Table No. 1 only says that in order to fulfill your desire to receive a yield of 15%, you need to ensure a return on assets of 11.5% or more. Once again, we emphasize that a yield of 15% is only your desire.
But what is your cost of equity? Maybe they make up only 5% of invested capital and why don't you be happy with a 10 percent return like Molly's?
In this case, the weighted cost of capital will not be 11.5%, but 9%, but there is an income! Profit - yes! (9% minus 5%).
Reduce your capital costs, get more of it out of circulation and grow rich!
So what can reduce the cost of raising equity capital to zero? Can. And this is not sedition, if you look closely at what we mean by the term "expenses".
Expenses are not the amounts transferred by you for the goods, not the money paid to employees and not the cost of raw materials and materials included in the costs of production and sold products. All this does not take away from you your property, your benefits.
An expense is a decrease in the value of assets or an increase in liabilities.
The owner, when using his own capital, will incur expenses in two cases:
1. Payments from profit, for example: dividends, bonuses and other payments, such as taxes, etc.
2. If part or all of the own capital is not involved in business turnover.
Let's dwell on this in more detail.
Let us turn to the mentioned concept of opportunity costs and the theory of the dependence of the cost of money and time.
The concept of opportunity costs proposes to use as their income from investments in a business that has the least risk and guaranteed profitability. If we continue this logic, it will become clear that the least risk will occur when refusing to invest in this business. In this case, the income will be the least. They will both be zero.
Of course, financial analysts, and just sane people, will immediately say that both the real and the relative consumption of assets during inactivity will be inevitable.
Real costs are caused by the need to maintain the quantitative and qualitative preservation of capital.
Relative costs associated with change market price assets and change in the welfare of the company under study, relative to the welfare of other entrepreneurs.
If your capital does not work, and the neighbor's capital functions properly and brings him income, then the more this income, the richer the neighbor becomes relative to you. Together with a neighbor, you will receive some average return in your business, which is precisely the measure of your neighbor's wealth growth and your relative loss. In other words, if you do not provide a return above the market average, then your share in the total volume of capital operating in the capital market has decreased. So you have incurred expenses.
What will be their size?
The calculation can be done like this.
Capital expenditure is equal to the difference between the return on assets in the industry under study and the return on assets of the company.
For example. Return on assets of the manufacturing industry is 8%. Your company's return on assets is 5%. This means you lost 3%. These are your relative costs. This is the relative price of your capital.
Since sectoral profitability indicators do not have significant fluctuations, it is quite possible to predict their values using the usual trend.
What does this give us? In our opinion, the following:
1. Greater opportunities for standardizing the cost of equity calculations than using alternative returns, since there are a lot of alternative options for investing in a business that has a low risk and guaranteed return.
2. The proposed approach limits the liberties, and therefore, in our opinion, increases objectivity when comparing the effectiveness of various options for investment projects.
3. Perhaps this will reduce practitioners' mistrust of calculations financial analysts. The simpler, the better.
Let's go further. What happens if the company's return on assets is equal to the industry average profitability? The cost of equity will become equal to zero? Theoretically - yes, if there are no payments from the profit. Our welfare relative to the state of the business community will not change. In practice, this is not achievable. Because there are bound to be payments and obligations arise that reduce the value of our own capital and, accordingly, reduce the assets owned by us. Even if the enterprise does not work, it must pay property taxes, etc.
Therefore, the price of the company's equity capital should consist not only of the price calculated based on the industry average return on assets, but also the price determined on the basis of dividend payments and other payments from profits, possibly including payments to the budget and off-budget funds. It may be correct to take into account the costs associated with the stakeholder business model when calculating the WACC.
When calculating WACC, factors that reduce the price of capital sources should also be taken into account. For example, at the cost of a source of funding such as accounts payable, is the amount of fines paid by the company for late payments to suppliers. But doesn’t the company receive the same penalty payments from buyers for late payments, according to accounts receivable?
What does the WACC score reflect in the end? In our opinion, it is a measure economic efficiency existing business or investment project.
A negative WACC value indicates effective work management of the organization, as organizations receive economic profit. The same applies to investment projects.
The value of WACC within the range of change in return on assets from zero to the value of industry average values indicates that the business is profitable, but not competitive.
A WACC that exceeds the industry average return on assets indicates a loss-making business.
So, the end of the discussion about WACC? No. Ahead of the mysteries of corporations.
“If you don’t cheat, you won’t sell, so why frown?
Day and night - a day away. Further, how to get "
Index funds allow you to receive income from investments in the stock market absolutely passively. For example, if you invest in a fund based on the S&P 500 index, your funds will be invested in Common Market, and you do not have to think about how to manage your money and whether to sell or buy shares of certain companies. All these moments will be managed by the fund, which forms its own investment portfolio depending on the state of a particular index.
You can also choose a fund that works with any index. There are funds involved in various business sectors - energy, precious metals, banking, emerging markets and others. You only need to decide for yourself that you want to do it, then invest and relax. From now on, your stock portfolio will run on autopilot.
Make videos for YouTube
This area is developing very quickly. You can make videos of absolutely any category - music, educational, comedy, movie reviews - anything ... and then put it on YouTube. Then you can connect to these videos Google adsense, and automatic ads will appear in them. When viewers click on this ad, you will earn money from Google AdSense.
Your main task is to create decent videos, promote them on social networks and maintain enough of them to earn income from a few clips. Shooting and editing a video is not so easy, but after that you will get the full source passive income capable of lasting for a very long time.
Not sure if you can do it on YouTube? Michelle Phan has combined her love for makeup and art with making videos, has amassed over 8 million followers, and now has her own $800 million company.
Try affiliate marketing and start selling
This is a passive income technique more suitable for owners of blogs and active Internet sites. You can start promoting any products on your site and receive a fixed fee or a percentage of sales.
Making money this way is not as difficult as you might think, because many companies are interested in selling their products in as many places as possible.
You can find partnership offers either by contacting manufacturers directly or on specialized sites. It is best if the advertised product or service is of interest to you or corresponds to the theme of the site.
Make your photos profitable on the web
Do you love taking pictures? If so, you might be able to turn it into a source of passive income. Photobanks, such as and, can provide you with a platform for selling pictures. You will receive a percentage or a flat rate for each photo sold to a website client.
In this case, each photo represents a separate source of income that can work again and again. All you have to do is create a portfolio, upload it to one or more platforms, and that's where your action will end. All technical issues of photo sales are handled through the web platform.
Buy high yield stocks
By creating a stock portfolio high yield, you will receive a source of regular passive income with an annual interest rate much higher than the percentage of bank deposits.
Do not forget that high-yielding stocks are still stocks, so there is always the possibility of capital revaluation. In this case, you will receive profit from two sources - from dividends and return on invested capital. To purchase such shares and fill out the relevant forms, you will need to create a brokerage account.
Write an ebook
Of course, this can be quite a laborious process, but when you write a book and publish it on trading floors, it will be able to provide you with income for years. You can sell the book on your own site or enter into a partnership agreement with other sites that are relevant to the subject of the book.
Write a real book and get royalties
As with writing e-book, first here you have to work hard. But when the work is finished and the book goes on sale, it will become a completely passive source of income.
This is especially true if you manage to sell the book to a publisher who will pay you royalties on sales. For each copy sold, you will receive a percentage, and if the book is popular, these percentages can result in substantial amounts. In addition, these payments can last for years.
Mike Piper of ObviousInvestor.com recently did this. He wrote the book Investment plain language”, which was sold only on Amazon. The first book became so profitable that he created an entire series. These books are in total.
Get cashback from credit card transactions
Many credit cards provide cashback ranging from 1% to 5% of the purchase amount. You still go shopping and spend money, right?
Such bonuses allow you to provide yourself with a kind of passive “income” (in the form of reduced spending) from actions that you still perform.
Sell your own products online
In this area, the possibilities are endless: you can sell almost any product or service. It can be something you created and made by yourself, or it can be a digital product (software, DVDs or instructional videos)
For trading, you can use a specialized resource, if suddenly you do not have your own website or blog. In addition, you can enter into a partnership agreement by offering goods to sites of relevant subjects or using platforms like (American marketplace for the sale of digital information products - ed.).
You can learn how to sell goods on the Internet and earn quite a lot from it. It may not be completely passive income, but it is certainly more passive than a regular job that you have to go to every morning.
Invest in real estate
This method falls rather into the category of semi-passive income, since investments in real estate imply, according to at least, low level of activity. However, if you have a property that you are already renting out, the only thing left to do is to maintain its condition.
In addition, there are professional property managers who can manage your property for a commission of approximately 10% of rent. Such professional managers help to make the process of profiting from such investments more passive, but they will take away part of it.
Another way to invest in real estate is to pay off a loan. If you take out a loan to buy a property that you will rent out, your tenants will pay off this debt a little each month. When the entire amount is paid out, your profit will increase dramatically, and your comparatively small investment will turn into a full-fledged program for leaving the main job.
Buy a blog
Thousands of blogs are created every year, and many of them are abandoned after a while. If you can acquire a blog with enough visitors - and therefore with enough cash flow This can be a great source of passive income.
Most blogs use Google AdSense, which pays once a month for ads placed on the site. You can also enter into partnership agreements to provide additional income. Both of these streams of profit will be yours if you own a blog.
From a financial standpoint, blogs typically sell for 24 times the monthly income the blog can generate. So if a site can make $250 a month, chances are you can buy it for $3,000. This means that by investing $3,000, you can receive $1,500 annually.
You may be able to buy the site for less money if the owner really wants to get rid of this asset. Some sites host "eternal" materials that will not lose their relevance and will generate income years after publication.
Bonus Tip: If you buy such a site and then fill it with fresh content, you will be able to increase your monthly income, and you will be able to sell the site again for a substantial amount over time higher price than you gave away when buying.
Finally, instead of buying a blog, you can create your own. This is also a good way to earn money.
Create a selling website
If there is a product that you know a lot about, you can start selling it on the profile site. The methodology is the same as when selling a product of your own manufacture, except that you do not have to deal with the production itself.
After a while, you may find that you can add similar products. If this happens, the site will begin to generate significant profits.
If you can find a way to deliver goods directly from the manufacturer to the customer, you won't even have to get your hands dirty. It may not be 100% passive income, but it is very close to it.
Invest in Real Estate Investment Trusts (REITs)
Let's say you decide to invest in real estate, but don't want to pay attention and time to it at all. Investment trusts can help you with this. They are something like a fund that owns various projects in the field real estate. The funds are managed by professionals, so you don't have to interfere with them at all.
One of the main advantages of investing in REIT trusts is that they usually pay higher dividends than stocks, bonds and bank deposits. You can also sell your interest in the trust at any time, making such assets more liquid than owning real estate on your own.
Become a passive business partner
Did you know successful company that needs capital to expand the business? If so, you can become something of a short-term angel and provide that capital. But instead of giving credit to the owner of the company, ask for a share of the shares. In this case, the owner of the company will manage the work of the company, while you will be a passive partner, also taking part in the business.
Every small business needs a referral source to support sales. Make a list of entrepreneurs whose services you use regularly and whom you can recommend for cooperation. Contact them and find out if they have a payment system for referrals.
You can add accountants you know, landscape designers, electricians, plumbers, carpet cleaners, you name it. Be prepared to recommend these people to your friends, family, and colleagues. You can earn commission on every referral just by talking to people.
Do not underestimate referral programs in the professional field. If the company you work for has bonuses for recommending new employees or new clients, take advantage of it. This is very easy money.
Rent out unused accommodations on Airbnb
The concept appeared only a few years ago, but very quickly spread around the world. Airbnb allows people to travel the world and pay far less than regular hotels. As an Airbnb member, you can use your home to host guests and earn extra money through rent alone.
The amount of income will depend on the size and condition of your home and its location. Naturally, if your house is located in an expensive city or near a popular resort, the income will be much higher. This is a way to make money from free spaces in your home that would be empty anyway.
Write an application
Apps can be an incredibly lucrative source of income. Think about how many people have smartphones today. Yes, almost everything! People are downloading apps like crazy – and for good reason.
Apps make people's lives easier. Whether it helps you post beautiful pictures or keeps track of tasks, there is always an app that is useful to someone.
You may ask: if there are so many applications, why should you try to create another one. Isn't there too much competition? All this is true, but fresh creative ideas can win. If you can come up with something unique, you can capitalize on it.
Don't know how to program? No problem, you can learn. There are a lot of different courses on the Internet, including free ones. Alternatively, you can hire a developer to create an application based on your idea.
The end result is an application that will potentially generate relatively passive income.
Create online courses
Every person is an expert in something. Why not create an online course about your hobby?
There are several ways to create and deliver your own online courses. One of the most simple ways is to use sites like
We conduct classical fundamental analysis ourselves. We determine the fair price according to the formula. Accept investment decision. Features of the fundamental analysis of debt assets, bonds, bills. (10+)
Classical (fundamental) analysis
Universal formula for a fair price
Classical (fundamental) analysis based on the premise that the investee has a fair price. This price can be calculated using the formula:
Si - the amount of income that will be received from investment in the i-th year, counting from the current to the future, ui - the alternative return on investment for this period (from the current moment to i-th payments amounts).
For example, you purchase a bond with maturity in 3 years with a lump sum payment of the entire amount of principal and interest on it. The amount of payment on the bond, together with interest, will be 1,500 rubles. Let us determine the alternative return on investments, for example, by the return on a deposit in Sberbank. Let it be 6% per annum. The opportunity return is 106% * 106% * 106% = 119%. The fair price is equal to 1260.5 rubles.
The above formula is not very convenient, since the alternative return is usually assumed by years (even in the example, we took the annual return and raised it to the third power). Let's convert it to the annual alternative return
here vj is the alternative return on investment for the jth year.
Why are all assets not worth their fair price?
Despite its simplicity, the above formula does not allow you to accurately determine the value of the investment object, as it contains indicators that need to be predicted for future periods. The alternative return on investment in the future is unknown to us. We can only guess what rates will be in the market at that moment. This introduces especially large errors for instruments with long maturities or without them (stocks, consoles). With the amount of payments, too, not everything is clear. Even for debt securities (fixed-income bonds, bills of exchange, etc.), for which, it seems, the payment amounts are determined by the terms of issue, the actual payments may differ from the planned ones (and the formula contains the amounts of actual, not planned payments ). This occurs when a debt is defaulted or restructured, when the issuer is unable to pay the full amount promised. For equity securities (shares, shares, shares, etc.), the amounts of these payments generally depend on the performance of the company in the future, and, accordingly, on the general economic situation in those periods.
Thus, it is impossible to accurately calculate the fair price using the formula. The formula gives only a qualitative idea of the factors affecting the fair price. Based on this formula, it is possible to develop formulas for a rough estimate of the asset price.
Estimation of the fair price of a debt asset (with fixed payments), bonds, promissory notes
AT new formula Pi - the amount promised to be paid in the relevant period, ri - the discount based on our assessment of the reliability of investments. In our previous example, let us estimate the reliability of investments in Sberbank as 100%, and the reliability of our borrower as 90%. Then the estimate fair price will amount to 1134.45 rubles.
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Live in modern world constantly exposes a person to all sorts of tests, including financial ones. Not every person can say with certainty that he is financially secure, because most people, as a rule, have only one source of income - the money they receive for the work they do. And it doesn’t matter if it’s for hire or own business, the important thing is that there is only one source of income. But what if, for some reason, this source ceases to bring money? It is for this reason that some people think about additional sources of income. And for those who do not think, we strongly recommend doing this, because. in the future, and in the present, it can do an excellent service. Below we will consider several options for alternative sources of inflow of finance and some of their nuances.
In general, sources of income can be divided into active and passive. Active ones are those in which we are directly involved in making a profit and make efforts to receive money. Passive are those in which a person practically does not make any efforts to make a profit and his investments (time, effort, money) work for him. Let's figure out which active or passive source income can become additional?
Active additional sources of income
In fact, a situation where there may be a need for additional finance, or simply not enough money earned at the main place of work, can arise for everyone. You can, of course, try to achieve a promotion in your career, an increase in wages, or look for a higher paying place, but it is not a fact that this will succeed. You can try to find a second job, but where to get the time and energy for it, if you are already fully busy? But there is a way out: you need to pay attention to your hidden resources, which in everyday bustle we can simply not notice, which means we don’t use them. They can become the basis of an active additional source of income.
Knowledge
Think about what this moment you have knowledge, but which you do not use to create additional profit. What are you good at? What can you teach? What can you talk about or on what topic can you advise? What ideas did/do you have that you didn't pay enough attention to? Surely you will be able to find something interesting. In addition, if you wish, you can learn something new: take some courses, get a new specialty or a second or even third education, and then use the knowledge gained to make money in a new field.
Technical Resources
One of the most powerful technical resources Today, almost everyone has a home - it's a computer. Usually it is purchased for studying, watching movies, listening to music and other entertainment, but it can also be used as a means of earning money. If you have Internet access and some free time, you can look online for ways to generate additional income. The situation is similar with the presence of a car - it can be used for various kinds of part-time work: as a taxi, for delivering sushi or pizza, etc. Make a list of what you have and see if there is any way you can use it to your advantage.
Hobbies, hobbies, interests, talents
Every person has some distinctive feature: someone writes beautifully, someone understands technology, someone gets along wonderfully with animals. What are you good at doing? Even the simplest ability to embroider or knit beautifully can become an additional source of income. And if you like it, that's even better! What are your hobbies? What are your interests? Can your area of interest serve as a starting point for creating another source of income? Show your imagination, activate your creativity and try to come up with some interesting ideas that you can implement and improve your financial condition.
Time
Time is the most valuable resource that a person has, but which is often completely mediocrely wasted. Analyze what you spend your time on: how many hours a day do you have useless activities? And how much do you spend on finding a new way to earn money? You must learn your time resource: engage in self-development and personal growth, spiritual practices, analyze your knowledge, technical resources, skills, hobbies, hobbies and interests in order to learn how to turn them into money. This, of course, does not mean that you can not relax and have fun. But if you have a need for additional funds, then "business - time, fun - an hour."
So, with active additional sources of income, we figured it out. The main direction of work is now clear and if you wish, you can find some other interesting active way to earn money. Let's move on to passive sources.
Passive additional sources of income
Oddly enough, the very concept of passive income is rather unusual for Russians, although in the West they have been familiar with it for a long time, and in some schools it is even taught there. financial literacy. In our country, this topic has been studied very little. And this is mainly due to the stereotypes imposed and brought up in the last decades of the last century. On the post-Soviet space It was the person who achieved everything that he has, making tremendous efforts, that was considered successful. However, at all times the most successful, wealthy and wealthy have always been people with such qualities as sharpness of mind, prudence, and able to profit from their investments. But let's leave these arguments for another time, and consider those sources of income that can be considered passive, as well as available to people with low and middle incomes.
Pension
A pension is a regular cash benefit that is paid to people who have reached retirement age who have a disability or who have lost their breadwinner. But, to our great regret, the size of the pension in our country, to put it mildly, leaves much to be desired. Yes, and many people never live to retirement age, and thousands of pensions go into the "bottomless abyss" of our state. That is why only not the families of those people who did not live to see their retirement? Interest Ask. In general, no matter how ridiculous it may sound, a pension is a source of additional passive income.
Bank account
Anyone can open a bank account and deposit money into it at interest. And this can already be considered a source of passive income. But there are a few things to consider here. If the invested amount is small, then the interest of the bank, taking into account inflation, often only contributes to saving money and saving them from depreciation, i.e. it cannot be called a source of passive income. But if the amount is large and the percentage of accruals exceeds the inflation index, then the capital will constantly grow - this is passive income. In short, in order to make a profit at interest, it is worth putting only large amounts.
Securities
Own securities very profitable, because this allows you to receive a minimum of 10 to 30 percent of profit per year. But it is recommended to engage in securities only with the help of an experienced specialist in this field. He will be able to offer several investment options that will be the most optimal for you. The richest people in the world resort to working with securities, therefore, if there is an opportunity to start acting in this direction, then in no case should it be missed.
big business
Speaking of a big business, it should be borne in mind that its creation requires a considerable investment of time, effort and finance. But the result is worth it. If the company is “strongly on its feet” and it is run by competent people, then it may well become an excellent source of passive income and even allow the person (or group of people) who organized it to go to. The owner should only control the work of the organization and have a plan of action in case of force majeure.
Website on the Internet
If you approach the issue of creating a site seriously and come to grips with its promotion, then after a while it will be able to bring solid profits to its owner. Contextual advertising, affiliate programs and other ways of monetizing the site play a huge role here. It is interesting that a person is able to create a website both with the help of competent specialists (for a substantial fee, of course), and quite independently, having learned this and having studied all the subtleties of the issue.
Royalties
If you can write good book, which will be relevant and in demand by readers, then until the end of your life you will be able to receive royalties from the sales of your work. And this applies not only to books, but also to inventions, ideas, projects, websites and other creations, regardless of the direction of the activity. Just think how much money a man named Seth Wheeler made when he patented toilet paper in 1871?!
In conclusion, I just want to say that if you really want to create an additional source of income (and even more so if there are several), then you will have to seriously think and reconsider many components of your life: habits, beliefs, personal and, of course, apply for this a lot of effort. And although it is not easy, but it is worth it. You just need to want it - everything is in your hands!
