What is the important variances between cash flow and profit and why investors need to know?

It’s important to remember that profits are only beneficial if they are eventually converted into cash. Both cash flow and profit are indicators of a business’s financial health and operating efficiency. While profit is the goal, cash flow determines whether a company can sustain that goal in the long term. Cash flow is essentially the lifeblood of a business.

What’s the Difference Between Cash Flow and Profit? In previous blogs, we’ve covered the Income Statement and Cash Flow Statement. It’s important for investors, especially those new to financial statements, to understand the differences between Cash Flow and Profit. While they are often used interchangeably, Cash Flow and profit are not the same. In a… Continue reading →

The ultimate guide to Working Capital and the most important metrics you need to know.

Working Capital is the cash needed for a business to carry on operating and covering short-term obligations. Understanding a business’s Working Capital needs is a great way to measure the near-term liquidity and risk factors of a business to carry on day-to-day activities. It can provide investors insights into the operating efficiency of the business… 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 →

One of the main reasons stocks go up is the powerful impact of Multiple Expansion.

Multiple expansion happens when the value of a stock rises faster than the stock's Intrinsic value. Multiple Contraction is the opposite | The Stoic Investors

* When I first started investing, I just didn’t understand the concept behind the Multiple and how it contributed to returns (or losses) for a stock. This is not about the investing strategy you adopt such as buying undervalued companies based on P/E or buying growth companies based on P/S. This is just a simple… 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. 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 →

What is the best way to measure the weighted average cost of capital and why is it important?

The WACC is the average rate at which a company can expect to finance its business from both equity and debt. This means that it represents the average overall return that both shareholders and debt holders demand to provide the capital the company needs to grow and operate. When using the Discounted Cash Flow (DCF) modelling technique, the WACC is often used as the discount rate to calculate the net present value of a business. To calculate the WACC, the cost of each capital source, such as debt, preferred shares, and common shares, is weighted by its percentage of total capital before they are added together to create an overall weighted average.

The Weighted Average Cost of Capital (WACC) is a crucial financial metric that investors use to determine the value of a company’s combined pool of capital, debt and equity. TABLE OF CONTENTS: The Weighted Average Cost of Capital explained. The WACC is the average rate at which a company can expect to finance its business… Continue reading →

Why is the Capital Asset Pricing Model important?

The Capital Asset Pricing Model (CAPM) is a way to measure the cost of equity of a firm and the expected returns from an investment. Investments come with risk, the higher the return the higher the risk. The CAPM model helps establish the relationship between the expected return and the systematic risk of the company.

The Capital Asset Pricing Model (CAPM) is a way to measure the cost of equity of a firm and the expected returns from an investment. TABLE OF CONTENTS: The Capital Asset Pricing Model explained. Investments come with risk, the higher the return the higher the risk. The CAPM model helps establish the relationship between the… Continue reading →

What is the best way to calculate Risk Premium and why is it important?

The Risk Premium (RP) is the additional rate of return that investors expect to receive for taking on more risk when investing in stocks. This premium is above the Risk-Free Rate, which is the return that investors expect from a risk-free investment.

The Risk Premium explained. The Risk Premium (RP) is the additional rate of return that investors expect to receive for taking on more risk when investing in stocks. This premium is above the Risk-Free Rate, which is the return that investors expect from a risk-free investment. Investors should be compensated for taking on additional risk… Continue reading →