What is the ROC ratio and how to use it?

The Return on Capital (ROC) is a “profitability ratio” used to measure the efficiency in which a business allocates its capital to generate profits. Return on capital is one of the best ratio’s that investors can use to determine whether a business will make a viable investment opportunity. The capital return ratio shows how much operating income (EBIT) is generated for every dollar invested in capital.There are two types of capital return ratios: ROCE (Return on Capital Employed) and ROIC (Return on Invested Capital). Both are used when valuing the capital returns on a business and each have a place which we will explore further below.

The Return on Capital ratio explained. The Return on Capital (ROC) is a “profitability ratio” used to measure the efficiency in which a business allocates its capital to generate profits. Return on capital is one of the best ratio’s that investors can use to determine whether a business will make a viable investment opportunity. The… Continue reading →

What is the ROE ratio and how to use it?

The Return on Assets (ROA) is a “profitability ratio” used to measure how much profit it can generate from its assets. It shows how efficient a company is at earning profits from utilising its economic resources or assets on the balance sheet. The assets ratio is a great way to look at the value and growth metrics of a business. A rising and consistent return on assets means a business is earning more profit relative to its assets. A declining return on assets may reflect poor capital allocation and potential financial concerns.

The Return on Equity ratio explained. The Return on Equity (ROE) is a “profitability ratio” used to measure the profitability of a business in relation to its equity deployed. The ratio shows how efficient (or deficient) the company is at taking the equity investments of its shareholders and deploying that equity and generating income from… Continue reading →

What is the Rule 72 and how to use it?

The rule of 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank rates or bonds. I also use it as an “estimation” only on potential investment ideas if I am modelling ROIC (just for curiosities sake). It is best used for anything that grows at a compounded rate.

The Rule of 72 explained. The rule 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank… Continue reading →

A simple way to Calculate Portfolio Returns.

There is a multitude of portfolio, investment, and financial management software available. In my personal experience, I still after 15 years prefer to use excel for practically everything to do with investments. I have tried a lot of different subscription and software services, but I have tailored my own systems to reflect my own process and how I manage my wealth.

Calculate Portfolio Returns explained. This is a simple formula to calculate portfolio returns. I prefer to use it annually however you can use the formula monthly measuring performance depending how active you are. There is a multitude of portfolio, investment, and financial management software available. In my personal experience, I still after 15 years… Continue reading →

What is the Compound Annual Growth Rate?

The CAGR (Compound Annual Growth Rate) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one.

The Compound Annual Growth Rate explained. The Compound Annual Growth Rate (CAGR) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one…. Continue reading →

What is the Discount Factor and how to use it?

The Discount Factor is a metric that determines the present value of $1. It is used when conducting financial modelling such as the discounted cash flow or (DCF), net present value (NPV) model. The Discount Factor is used to estimate the present value (PV) of receiving $1 in the future based on the expected date of receiving it and discount rate estimation.

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What are some of the reasons people don’t invest?

Some people think investing is like the man in the picture solving a formula that very few understand. There are a lot ofcommon reasons that people don’t invest into stocks (or many other asset classes). Some understandable, others circumstantial but all mostly behavioural. Before we get into investing, understanding why others avoid the markets can be helpful. All though we may be advocates for investing in public markets we can not have the confirmation bias that it is for everyone. What is suitable for one person may not be for another.

There are quite a few very common reasons that people don’t invest into stocks (or many other asset classes). Some understandable, others circumstantial but all mostly behavioural. Before we get into investing, understanding why others avoid the markets can be helpful.

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What may be better than investing straight away and why?

I don’t think that everyone should simply jump in with both feet. Whilst investing can boast stable long-term returns, there is lower lying fruit to pick like better financial habits that can help build your wealth.

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Why is investing important and what are some key reasons?

Put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit. Investing is defined as the “commitment of resources to achieve later benefits”. If an investment involves money, then it can be defined as a “commitment of money to receive more money later”. It is the action to grow one’s money over time. We purchase an asset with the goal of generating income or capital appreciation (rise in value from what you forked out for it).

Investing is an effective way to put your money to work and build wealth in the long term. Wise investing may allow your money to outpace inflation and increase in value. Whether we are income seekers or capital growth builders, investing is about looking after our future selves.

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What does investing really mean and how to think about it?

Investing is an effective way to put your money to work and build wealth in the long term. Wise investing may allow your money to outpace inflation and increase in value. Whether we are income seekers or capital growth builders, investing is about looking after our future selves.

Investing is defined as the “commitment of resources to achieve later benefits”. If an investment involves money, then it can be defined as a “commitment of money to receive more money later”. It is the action to grow one’s money over time.

Continue reading →