Explaining the DCF Valuation Model with a Simple Example

Discounted Cash Flow (DCF) valuation remains a fundamental value investing model. Using a DCF continues to be one of the best ways to calculate a company’s intrinsic value. Using a DCF remains the main method analysts use throughout finance, and some think using this type of valuation remains far too complicated for them. In today’s […]

What is a Hyperinflationary Economy and What Are the Effects?

In a time where inflation is a hot topic around the coffee bar, let’s take a deeper look at a hyperinflationary economy and the impacts that it can have. With the United States economy currently on crutches and war in Ukraine with no current end in sight, inflation and recession have become a part of […]

Is Investment Management A Good Career Path? Exploring Investing Jobs

If you’re thinking about a career in finance and you enjoy working with people, you may find the investment niche quite attractive. Plus, with the right skills, it’s easy to find the job enjoyable and satisfactory in terms of rewards and perks. But what career path should you take if you want to work as […]

How to Calculate the Cost of Debt

Determining the value of a financial asset is part of the process of calculating the present value of future cash flows. To value a company, we need to have a sense of magnitude and sense of those cash flows, plus any risk associated with receiving that cash. Part of determining the future value of those […]

The 3 Inputs for the Cost of Equity Formula

The value of any financial asset is the present value of its future cash flows discounted to the present. That is the basis of any discounted cash flow model and part of the process for valuing any company. Part of that analysis determines the cost of capital or discounting factor of those cash flows. There […]

Two Ways to Use the Retention Ratio Formula to Project Future Growth

Most companies find growth by retaining earnings (capital) in the business and reinvesting it for sustainable future returns. Using the retention ratio formula can help you project a company’s future growth potential by looking at how much the company can retain in the business. There are two main types of retention ratios which are used […]

What is a Company’s Optimal Capital Structure and What Influences It?

“The first question is, is when you have capital, is it better to keep it or return it to shareholders? It’s better to return it to shareholders when you cannot create more than a dollar of value with that capital. That’s test number one. And if you pass that threshold, that you think you can […]

ROIC vs ROCE in Simple Terms – Why It Matters

Both ROIC (Return on Invested Capital) and ROCE (Return on Capital Employed) are formulas trying to describe how efficiently a company invests its capital. The difference between ROIC vs ROCE is subtle but powerful—basically, one (ROCE) is a shortcut of the other (ROIC). Before diving deeper, here’s the simple cliff notes: ROCE = EBIT / […]

Making the Discount Rate Formula Simple – Explain it Like I’m a 7th Grader

To me, one of the hardest parts of understanding a DCF valuation was the discount rate. It didn’t help that the formula was complex. I’d like to make the discount rate simple, using simple words. Maybe if you can understand the basic concept of the discount rate, it will help with calculating one for yourself, […]

Be Aware of Liquidity Risk as an Investor

Liquidity Risk is an important concept that continuously pops its ugly head up from time to time. It occurs when a party has urgency or an obligation to discharge an asset and it affects the market price for that asset by trying to sell it too quickly. Sometimes obligations cannot be met fully (even at […]