What is PPE in Accounting?

PPE accounting refers to long term assets categorized as PPE (plant, property, and equipment), which are tangible assets that are expected to create cash flows over the long term. These can be significant to investors because their depreciation schedules directly influence the bottom line (earnings). This post will cover: The Basics of PPE and Depreciation […]

Days Sales in Inventory Guide – With Examples That Signal Future Problems

Days Sales in Inventory, or DSI, can be a invaluable ratio in evaluating inventory management of a public company—which can also sometimes signal future demand (and thus revenue) problems in advance. In this post, we’ll discuss: The Days Sales in Inventory (DSI) calculation Examples of bad DSI trends Best applications of the Days Sales in […]

How to Calculate Days Sales Outstanding (DSO) – w. Real Examples

The DSO acronym in finance stands for average days sales outstanding, and is critical to understanding a company’s revenue and sales trends. The DSO calculation is simple, yet its usefulness should not be glossed over. Using the DSO formula can help a financial analyst spot when a company could be “stuffing the channel”, leading to […]

Return on Total Capital and How to Calculate it

“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter All great businesses generate high returns on capital, and they do so regularly. Companies such as Microsoft, […]

What a Good Debt to Asset Ratio Is and How to Calculate It

Many businesses use debt to fuel their growth in today’s low-interest business world. Because the cost of debt is far lower than equity, many companies choose to raise cash to grow by taking on larger amounts of debt. The debt to asset ratio measures that debt level and assesses how impactful that might be for […]

What is the Cost of Capital and How to Use It

“I’ve never heard an intelligent discussion about ‘cost of capital.’” – Charlie Munger The value of any company or investment is the present value of future cash flows, whether Microsoft, our home, or a piece of art. Part of determining the present value of the future cash flows is defining the discount rate or hurdle […]

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

“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 needs to be a critical part of every investor’s analysis of companies. As the low-interest rates continue, more and more companies will turn to debt as […]

Debt Financing Vs. Equity Financing: The Grudge Match

CEOs have one job, to deploy company capital in a way that grows the company. To do this, they have a choice to make, use debt financing vs. equity financing? Whichever choice they choose goes a long way towards the continued profitability of their company. Ratios such as return on equity, capital, or invested capital […]

How to Calculate Market Value of Debt (With Real-Life Examples)

Companies need financial capital to operate their business. Many companies raise capital by issuing debt securities (bonds) or by selling their stock. The amount of debt a company that makes up part of the overall capital structure of a company has many risks and return ramifications. When analyzing a company measuring the amount of debt […]

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 […]