The Magic of Share Buybacks; Its Effect on EPS and BVPS – CFA Level 1
Share buybacks are becoming more and more popular as a way to return cash to shareholders. Personally, they are one of my favorite things to see a company doing as they show capital budget discipline and long-term faith in the existing business from management and the board of directors. Historically, share repurchases have been associated […]
Calculating Growth: Internal Growth Rate vs Sustainable Growth Rate
There are more than a couple of methods which can be used to get an estimate of the growth rate for a company. Some can be opinionated while others are built on logic and numbers. It is always prudent for investors to look at valuations and potential returns from a conservative viewpoint that is anchored […]
Investment Insights from Fair Value Measurement
Fair value measurement is an important accounting policy to understand as assets (and liabilities!) carried at fair value on the balance sheet can represent significant portions of book value that shareholders are investing in. Also, fair value’s influence on reported net income normally flows unadjusted to the widely viewed price/earnings ratios reported on the most […]
Coverage Ratios – A Tale of Two Companies
Debt is a powerful tool a company can use to help leverage return on assets but it needs to be used responsibly. While debt-to-asset ratios tell a good deal to investors, they can be a bit deceiving because they mention nothing about the profitability of the business and ability to service the debt. Enter coverage […]
How to Test Goodwill & Intangibles for Possible Impairments
As technology increases and goodwill and intangibles continue to get more common on the balance sheets of companies, it becomes ever more important to understand the accounting category. It is essential to be able to differentiate between what is healthy goodwill and intangibles and what is toxic goodwill and intangibles that are not being supported […]
“Justified” Market Multiples Valuation – Is The Price Right?
Comparing price and enterprise multiples across investment alternatives is a good place to start when analyzing a company. Using the justified approach to calculating multiples can shed additional light on if the company’s market price can be “justified” based on fundamentals. The justified method can also help investors and analysts break down the current multiple […]
Operating Cycle vs. Cash Flow Cycle
A company’s Operating Cycle and Cash Conversion Cycle are quite similar with only one additional item added on to the Operating Cycle formula in order to get the Cash Conversion Cycle formula. Both formulas are liquidity measures and can also be used as a gauge for the operational and financial effectiveness of a company. […]
Combined Ratio – How to Calculate it With Examples
How do we determine if the insurance companies we invest in make money? Is there some secret formula or hidden clues in the financial reports? In a word, yes. The ratio refers to the combined ratio and can reveal everything to us. Well, maybe not all, but quite a bit if we know where to […]
Tobin Q Ratio – CFA Level 3
The Tobin Q ratio is an asset-based valuation model that has found its way into many value investor’s playbooks due to its economic logic based around replacement value in attempting to judge whether a company, or the market as a whole, is over or under-valued in the financial markets. The ratio was popularized by Noble […]
How DuPont Analysis is an Essential Tool to Measure Profitability
The DuPont model is a classic tool for any investors toolbox and many even consider it an essential part of any analysis. The DuPont Analysis equation breaks a company’s Return on Equity (ROE) down into three core elements; Profit Margin, Asset Turnover, and Financial Leverage. As readers will come to learn, it is not enough […]
