Guide to Terminal Value, Using The Gordon Growth Model
When we buy a company, we dream that the company’s high growth rate will live on forever. Unfortunately, that is not a reality unless you are Amazon. For the rest of us, facing that reality means utilizing a terminal value with the Gordon growth model as our best means to an end. Did you know […]
Explaining the DCF Valuation Model with a Simple Example
Updated 9/15/2023 Discounted Cash Flow (DCF) valuation remains a fundamental value investing model. Using a DCF continues as 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 […]
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 […]
The 3 Main Types of Securities, and Their Returns Over Time
Updated 4/28/2023 “Never depend on a single income; make an investment to create a second source.” Warren Buffett Many know that investing remains one of the best ways to grow our wealth, but do we know what investment vehicles we have available? Everyone is familiar with stocks, some are familiar with bonds, and most are […]
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
Updated 12/19/2023 Determining a financial asset’s value is part 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 cash flows is […]
The 3 Inputs for the Cost of Equity Formula
Updated 12/19/2023 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 valuing any company. Part of that analysis determines the cost of capital or discounting factor of those cash flows. There are […]
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?
Updated 11/9/2023 “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 […]
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, […]
