The 3 Main Profitability Ratios Used; with Average Industry Profitability Stats
Profit remains the goal of every business in the world, but how do we track a company’s profitability, and how do we compare the profitability of one company to another? Profitability margins help to answer both questions. Using the three main profitability margins is the fastest, easiest way to determine a company’s profitability, and the […]
Your EBITDA Margin Guide: How to Use, the Controversy, Real Examples
One of the more popular metrics to take the financial community by storm over the last twenty years is the EBITDA margin, which companies use to determine their operating profitability. The EBITDA margin is a quick, easy way to determine the profitability of any company, but it does come with a little controversy. If you […]
Contribution Margin and Unit Economics in Investing
Contribution margin is used in both investing and management accounting to make decisions regarding profitability, project feasibility, and unit economics. Contribution margin measures the incremental income associated with each additional unit of production. Particularly when investing in growth companies, contribution margin and unit economics should be analyzed very closely to understand the scalability of the […]
Defining a Good FCF Margin Formula: Basics, Examples, and Analysis
FCF margin is a valuable tool to understanding how much free cash a company can generate from its revenues. In general, a higher FCF (Free Cash Flow) margin means a company doesn’t need to spend much money to create profits and free cash. What is FCF (Free Cash Flow)? The basic definition for FCF is […]
Extended DuPont Analysis of Return on Equity – CFA Level I
The Extended DuPont analysis, also known as the 5-step DuPont equation, breaks down the already impressive DuPont model further. For investors, the Extended DuPont analysis is important because it will signify how leveraged a company is to the business cycle, financial markets, as well as government tax policy. Using the DuPont model can allow investors […]
Net Debt to EBITDA Guide: Risks, Valuation, Examples, and S&P 500 Data
Of the many ratios to measure risk with a particular stock, the Net Debt to EBITDA ratio is one of the more common you’ll see listed in company financials. The logic is simple, and the ratio isn’t terribly complex, so I’ll show you how to easily source it in this post. Feel free to skip […]
The Basics of Computer Software Depreciation – Common Q’s Answered
Some parts of GAAP accounting rules can be more tricky, and software and how it is depreciated can be one of those. Most software is depreciated over a useful life, but there can be a type of software which is not depreciated (if it is considered R&D software). First let’s talk about depreciation and amortization, […]
Short-Term Debt: Evaluating Financial Strength and Cash-Generating Growth
Short-term debt and current liabilities often get combined into the same bucket. When looking at the debt to equity ratio of the company, most investors calculate the ratio using the total liabilities divided by the equity. Analyzing a company’s debt position can be useful to determine if the company uses debt to fuel the company’s […]
How to Read SEC Filings – Dissecting the 10-k Annual Report
If you want to learn more about a company or invest in a company, you can find a plethora of information on the company’s annual report, otherwise known as a 10-K. The 10-K offers an in-depth look at a public company’s financials, the risks it faces, and operating results for the previous year. Warren Buffett […]
Simple Balance Sheet Structure Breakdown (by Each Component)
“Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.” Peter Lynch The ability to read a company’s financials, such as the income statement, balance sheets, and cash flow statement, is a key source of data for investors, both do-it-yourselfers and institutional investors. As […]
