Free Cash Flow vs. Adjusted EBITDA

Executives of public companies like to paint their businesses in a positive light. When communicating with investors – a process known as investor relations – they will make various adjustments to their financial statements to try and convince Wall Street to buy stakes in their businesses. The most popular of these is adjusted EBITDA. You’ve […]

Net Debt to EBITDA Guide: Risks, Valuation, Examples, and S&P 500 Data

Updated 8/25/2023 Net Debt to EBITDA ratio is a common tool for measuring risk. It’s often listed in company financials. The logic is simple, and the ratio isn’t terribly complex; let’s see how to calculate it ourselves. In this post, we will cover [Click to skip ahead]: Let’s dive in.

Operating Leverage Formula: How to Calculate It with the Income Statement

Updated 9/3/2023 “For a fundamental investor, anticipating revisions in expectations is the key to generating attractive returns. Sources of those revisions include fundamental outcomes (typically earnings revisions) and an assessment of how the market will value those fundamentals (multiple expansion or contraction). Investors who are able to forecast earnings in a year’s time that are […]

Analyzing Intangible Assets and Their Impact To Assets and Operating Income

The change in how companies invest their capital has grown exponentially, and accounting rules have not kept up. Intangible assets comprise a larger portion of a company’s equity and assets than twenty years ago. While at the same the amount of physical assets on companies’ balance sheets has dropped. That shift has occurred during the […]

Accounts Receivable Vs. Accounts Payable and the Working Capital Cycle

In today’s business world, intangibles have grown in importance, but “old school assets and liabilities” such as accounts receivable and payable have grown in relevance. With the rise in SaaS businesses that rely on subscriptions for revenues, understanding how the business recognizes revenues and when those monies arrive in their accounts carries more importance in […]

Free Cash Flow Yield – Finding Gushing Cash Flow for Future Growth

Cash is king, and free cash flow acts as the engine’s oil. Determining free cash flow and its different uses remains a fantastic way to find great companies that grow into the future. Free cash flow yield remains an incredibly easy way to find those companies; some say it remains better than the price to […]

Depreciation and Amortization – A Complete Financial Statements Guide

Updated 8/7/2023 Buying businesses and equipment for operations is a part of business, and using depreciation and amortization is how companies account for those purchases. Many have written about the benefits or harm done by considering depreciation and amortization a “non-cash” expense. Some consider these items non-cash because we add them back to earnings to […]

Financial Accounting for Beginners: Debits/Credits, P&L, Assets/Liabilities

Updated 8/7/2023 Recently, Berkshire Hathaway earned $81.4 billion in 2019, a 1,900% increase from the year before! How was this possible, by an accounting rule instituted in 2018 that requires companies to include in their bottom line gains from their stock portfolio, even if they don’t sell the stock. Buffett vehemently disagrees with this accounting […]

Simple Income Statement Structure Breakdown (by Each Component)

Updated 8/7/2023 The income statement is the first of the big three financial documents that all public companies must file. But what do we know about the income statement structure and how the statement flows from the top to the bottom? Have you ever heard the terms top-line or bottom-line? What do those terms mean? […]

The 3 Important, Main Components of Debt Analysis (+Metrics)

Updated 7/24/2023 “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.” John Maynard Keynes In today’s low-interest environment, debt analysis must be a critical part of every investor analysis of companies. As the low-interest rate continues, more and more companies will turn to debt […]

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