Post Category → Investment Calculations

What is the best way to calculate the Risk-Free Rate and why is it important?

The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour.

The Risk-Free Rate explained. The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour. The Risk-Free rate… Continue reading →

What is the best way to measure inflation-adjusted return and why is it important?

The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services.

The Inflation-Adjusted return explained. The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services. The inflation-adjusted return is a precise measure of the true… Continue reading →

What is the Dividend Payout and how to use it?

The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator of how much money a company pays out to investors, as this reduces the amount of cash it can use for expansion and growth.

The Dividend Payout Ratio explained. The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator… Continue reading →

What is the EPS and how to use it?

Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial and valuation ratios.

The Earnings Per Share explained. Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial… Continue reading →

What is the Operating Leverage and how to use it?

The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed and variable costs associated with generating that revenue.

The Operating Leverage ratio explained. The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed… 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 model (DCF) or the 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.

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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