A Cash Flow Statement is the last of the three financial statements that records all the incoming and outgoing cash of the business. It connects the income statement and the balance sheet by showing how cash has flowed throughout the business. The Cash Flow Statement unlike the other statements is a record of the actual… Continue reading
* 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
Stock valuation is the process of determining the intrinsic value of a business. This involves analysing the financial statements and understanding the business model, assets, liabilities, revenue, and other key quantitative and qualitative metrics. By doing so, we can assess whether an asset represents a viable investment opportunity or not. The underlying factor of stock… Continue reading
Compounding is the “Interest on interest” and multiplies your capital at an accelerated rate the longer you leave it. Compound interest is calculated on the initial principal amount plus accumulated interest. Compounding works by retaining and reinvesting all interest without disrupting the process by drawing capital out. TABLE OF CONTENTS: What is Compound interest? Compound… Continue reading
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
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
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
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 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
