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 […]
Calculating Intrinsic Value with a DCF Like Warren Buffett Would
“Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” Basehit Investing These thoughts come directly from page […]
DCF for Bank Valuation: Step-by-Step Guide with Real-Life Examples
Updated 3/6/2024 Did you know that the financial industry makes up $8.81 trillion of the stock market cap, which is 13% of the market and is the third-largest by market cap compared to tech and consumer discretionary? Most investors ignore or pass the financial industry by because they don’t understand the industry or value those […]
Bond Valuation Overview (With Formulas and Examples)
Updated 6/15/2022 “An investment in knowledge pays the best interest.” Benjamin Franklin As investors learn more about our investments, we become better investors. One of the many things I enjoy about investing remains the continual learning and the bottomless subjects to learn. In that vein, learning to value a bond is high on my list […]
3 Simple Tips for Managing Interest Rate Risk in an Ever Changing World
Updated: 5/23/2023 For investors, basic interest rate risk management means that your portfolio should still earn a decent return even if interest rates were to trend in an unexpected direction. History can show us explicitly how interwoven interest rates and valuations (stock prices) have been; history also tells us that changing interest rates are the […]
Valuing Young Companies: A Complete Guide Using a DCF (FCFF) Model
Updated 12/12/2023 Valuing a young company is one of the more difficult tasks in valuation. Trying to pin a value on a young company, startup, or idea business is difficult because of little or no revenues and large operating losses. Other challenges are the short financial histories of young companies, plus the dependence on outside […]
Building a DCF Using the Unlevered Free Cash Flow Formula (FCFF)
Updated 12/12/2023 “Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” –Warren Buffett Cash is the lifeblood of all companies, and determining the fair value or intrinsic value is a matter of calculating what the future cash flow […]
How an ROIC Tree Shows a Company’s Growth Drivers and Capital Efficiency
Corporate officers are in the business of allocating capital. The goal for each CEO is to return an attractive return on its capital. All companies create value for their company and shareholders when they earn a return above the opportunity for other capital allocations. One way to measure those returns is the metric, ROIC, and […]
Expect 4.6% Equity Returns According to the Grinold-Kroner Model
The Grinold-Kroner model can be used to estimate returns for a single stock, a sector, or the market in general and is a learning from CFA Level III on capital market expectations. Knowing the factors contributing to total expected returns in the Grinold-Kroner model can help investors understand what is driving their returns. In this […]
Investor’s Guide to Incremental Invested Capital (ROIIC)
Updated 5/29/2023 Focusing on the returns on invested capital a company produces helps us better understand how well it sets itself up to grow. A company with strong returns on invested capital is the unicorn we all look for, especially when they efficiently use the capital to grow over time. A great way to measure […]
