Post Category → Financial Calculations

What is the best way to use Common Size Analysis and how to work it out?

Common Size analysis is an accounting method used to measure each line item on the financial statements as a percentage of a base figure | The Stoic Investors

What is Common Size Analysis? Common Size analysis is an accounting method used to measure each line item on the financial statements as a percentage of a base or common figure. For example, Revenue is often used as the base figure on the income statement. This means that all the line items such as cost… Continue reading →

Using this powerful formula is one of the best ways to estimate your expected returns on stocks.

Estimating expected returns is a crucial aspect of valuation. After using one of the valuation models, I calculate the estimated yearly return by running a simple formula. Expected Returns = Shareholder Yield + Earnings Growth +/- Multiple Expansion or contraction.

In this article, we will be using a powerful formula to determine the expected returns of an investment. I use this formula in combination with my preferred valuation method the reverse DCF model. TABLE OF CONTENTS: Although the formula is easy to apply to past data, it can be quite challenging to create a forward-looking… Continue reading →

Why is the Shareholder Yield one of the most powerful ways to look at returns?

The Shareholder Yield is a metric that measures how a company rewards its shareholders through three ways. Issuing dividends, conducting share buybacks, or reducing the company's debt. This formula helps in evaluating how effectively a company distributes its resources, which ultimately benefits its shareholders.

The Shareholder Yield Explained. The Shareholder Yield is a metric that measures how a company rewards its shareholders through three ways. Issuing dividends, conducting share buybacks, or reducing the company’s debt. This formula helps in evaluating how effectively a company distributes its resources, which ultimately benefits its shareholders. When analysing distributions, shareholders usually focus on… Continue reading →

What is the best way to calculate the Terminal Value and why is it important?

Terminal Value (TV) is a significant metric used by investors and finance professionals to determine the long-term value of a company. The Terminal Growth Rate is the estimated pace at which a company is expected to grow beyond the forecast period. In valuation theory, a company's value equals all future free cash flows derived from that business. Cash Flows are discounted to the present value at a Discount Rate representing the Weighted Average Cost of Capital. The DCF (Discounted Cash Flow) model consists of two components: the Forecasted period and the Terminal Value.

Terminal Value (TV) is a significant metric used by investors and finance professionals to determine the long-term value of a company. The Terminal Growth Rate is the estimated pace at which a company is expected to grow beyond the forecast period. TABLE OF CONTENTS: The Terminal Value explained. In valuation theory, a company’s value equals… Continue reading →

Alpha and Beta: What is the best way to use them and why are they important?

Alpha denotes the returns that exceed the initial investment return or benchmark. While Beta measures the correlation between a stock and the overall market. Beta helps in predicting the returns of an asset using the Capital Asset Pricing Model, while Alpha is the measurement of the absolute return exceeding that prediction.

Investment and financial markets frequently use the terms “Chasing Alpha” and “Market Beta”. Although they may seem like complicated financial concepts, all investors should understand how Alpha and Beta function in the investment world. Alpha and Beta are often used as measures to evaluate the performance and risk of an investment portfolio or an individual… Continue reading →