Is Depreciation an Expense? Is EBITDA Deceitful? Well, it Depends
From a purely accounting standpoint, the answer to “is depreciation an expense” is that yes it is, both in the income statement and the cash flow statement (as a sort of credit). However, the answer to the question “is depreciation an expense I can ignore”, or “is depreciation an expense, and does that mean EBITDA […]
Valuation Basics: Market vs Book Value – and The Argument for Both
When performing a DCF valuation, you must make a distinction between using market vs book value for debt. It is a critical part of calculating the weighted average cost of capital (WACC). The easy way, of course, is to just use book value of debt from the company’s balance sheet and be done with it. […]
Free Cash Flow Uses: One of the Most Important Metrics in Finance
Free cash flow remains the most important metric in finance. Beyond profit, free cash is money that the company can use in many ways to improve its position. Capital allocation remains one of the most important tasks a CEO faces in any company and goes a long way to increasing the company’s value. Defining those […]
How the Beneish M-Score Keeps You Cognizant of Earnings Manipulation
Updated 5/1/2024 Earnings manipulations are one of the more sinister aspects of financial accounting. While it isn’t prevalent, it is an aspect of investing that we should be aware of and protect ourselves from, if possible. The Beneish M-Score is a formula we can easily calculate to determine the likelihood of earnings fraud. The Beneish […]
Normalized Earnings: How to Deal with Earnings Fluctuations
Wall Street focuses a large amount of its time on earnings; analysts spend most of their time forecasting earnings projections; every company has an earnings call every quarter, and for Wall Street, earnings are a big deal. But what does one do when earnings are experiencing large fluctuations because of one-off transactions? How do we […]
Ratio Analysis: Easy Way for All Investors to Determine Company Health
Using ratios for analysis is a time-honored tradition in finance. These ratios can help you compare your company and your performance to others in your industry. Ratio analysis combines all sections of the financial statements and can give you a great company overview. Calculating these ratios is fairly simple once you know which ones to […]
Evaluating the Short-Term Liquidity of Businesses During a Crisis
Investing right now is a very scary time with all of the uncertainty that is surrounding the coronavirus. In a recent episode of the Investing for Beginners Podcast, Andrew and Dave opened up the floor to answer some listener questions and there’s one that I really wanted to focus on that discussed the short-term liquidity […]
What is EBITDA and Should Equity Investors Care About It?
The term earnings before interest, taxes, depreciation, and amortization (EBITDA) has gotten extraordinarily popular over the last few decades. Companies will often comment on EBITDA in their management discussion and analysis (MD&A), especially when they talk about debt and financial leverage. But as an equity investor, should I really care what EBITDA is? EBITDA does […]
How the Altman Z-Score Formula Can Help Avoid Crippling Bankruptcies
Updated 5/1/2024 In this post, you will learn how to use the Altman Z-score to avoid companies on the verge of bankruptcy. This guide will include lots of: This guide is for you if you are looking for a formula to help you avoid companies on the brink of bankruptcy. Let’s dive right in. What […]
Cash Flow Analysis Example Using Cash Flow Ratios Everyone Should Know
Updated 4/4/2024 “There is a huge difference between the business that grows and requires lots of capital to do so and the business that grows and doesn’t require capital.” Warren Buffett, from Warren Buffett and the Interpretations of Financial Statements Cash is king, and Buffett has built quite a kingdom, with the latest balance sheet […]
