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
Multiples Valuation Analysis is a relative valuation method using financial ratios such as the P/E ratio or the EV/EBITDA ratio. This approach values a company based on specific operating metrics, such as earnings or cash flow. It is also referred to as the market-based approach, as it suggests that similar companies should have comparable valuations… Continue reading
The Reverse DCF Model is an excellent tool for valuing a stock based on the market’s pricing rather than your own forecast. This model uses the Inversion concept which is a modified version of the Discounted Cash Flow model. By beginning with the current stock price and adjusting the expected growth of the business, we… Continue reading
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
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
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
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
The Operating Cash Flow Ratio explained. The OCF Ratio (coverage ratio) is a liquidity ratio that measures whether a business generates enough cash from its core operations to pay off its short-term obligations (Current Liabilities). As an investor, assessing a company’s short-term liquidity can provide valuable insights into its financial viability. The OCR ratio indicates… Continue reading
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
The Earnings Yield explained. The Earnings Yield is a financial metric used to measure the indicative rate of return on a stock. It is calculated by dividing the company’s earnings per share by the stock price, which forms the Earnings Yield (E/P). This ratio is not commonly used for valuation, but it is an effective… Continue reading
