Debt Financing Vs. Equity Financing: The Grudge Match
Updated 7/24/2023 CEOs have one job, to deploy company capital in a way that grows the company. To do this, they have a choice: 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)
Updated 6/24/2023 Companies need financial capital to operate their business. Many companies raise capital by issuing debt securities (bonds) or selling stock. The amount of debt a company has 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 […]
Balance Sheet Item: Book Value of Equity and Its Individual Components
Updated 6/24/2023 “Price is what you pay; value is what you get.” A company’s evaluation involves determining the value of its assets, liabilities, and equity. Most of us are familiar with assets such as accounts receivable and liabilities such as debt. But how many of us understand equity and how to determine the value of […]
Non-Controlling Interest in Financial Statements
On a consolidated balance sheet of a major company, you will likely see non-controlling interest come up so it is important for investors to understand this common item and ensure to back it out for valuation purposes. This article will teach investors all about non-controlling interest as we walk through Coca-Cola’s 2022 financial statements and […]
Maintenance Capital Expenditures: The Easy Way to Calculate It (With Calculator)
Updated 4/21/2023 To continue our series on owner earnings, I thought we would do a deeper dive into maintenance capital expenditures or maintenance CapEx. When calculating owner earnings, most of the values are pretty straightforward. But maintenance capital expenditures require a little more digging to come up with a number that we can use for […]
How to Read 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 […]
How to Calculate NOPAT with an Example
NOPAT is an important measure of profitability. Investors use NOPAT to measure cash flows and ROIC (return on invested capital). Our goal as investors to find profitable, high-quality businesses remains job number one. We want companies with high margins, low debt, capable management, and stable operations. Companies generating high levels of NOPAT have great free […]
Stock Based Compensation Expense and FCF Explained In a Simple Way
Edited 3/24/2023 Accounting for stock based compensation expense can be tough. The numbers don’t always line up from the income statement to the cash flow statement. Also, stock based compensation (SBC) is either automatically included or excluded, depending on which Free Cash Flow formula you are using (FCFF or FCFE). Over the long term, the […]
Working Capital vs Current Ratio – Don’t Calculate WC the Wrong Way!
There’s a subtle difference between working capital and current ratio. Though both can be calculated from the same place in the balance sheet, they are not one and the same. Working capital and current ratio paint two separate pictures about a business. To understand those pictures, we need to know the subtleties of each formula. […]
The 3 Main Profitability Ratios Used; with Average Industry Profitability Stats
Updated 3/6/2024 Profit remains the goal of every business worldwide, but how do we track a company’s profitability and compare it to another’s? Profitability margins help answer both questions. Using the three main profitability margins remains the fastest and easiest way to determine a company’s profitability, and the ratios are simple to calculate, too! Revenue […]
