Dividend Coverage Ratio (DCR) Explained: Definitions, Formulas, and Examples Dividend coverage is an important risk metric for equity analysts and investors, spotlighting a company's ability to pay dividends to its shareholders. The dividend coverage ratio (DCR) serves as a crucial metric to gauge how secure a dividend payment. This article calculates the dividend
Annuities are an essential concept in both individual finance and corporate finance contexts. A simple annuity is a series of equal payments made at equal intervals over a specified period. Perpetuities are a special class of annuities which literally go on forever. Between 1751 and 2015 the British Government had a number of these (potentially)
Basis points (BPS) is the common term for 1/100th of 1 percent or 0.01%. This unit might not seem worth naming, but in bond markets for example, this is the unit for measuring daily price movements and credit spreads – i.e. the interest rate premium charged to a company because it is a weaker credit
The equity risk premium (ERP) is a crucial concept in corporate finance and investment analysis. It signifies the additional return that investors demand to invest in stocks versus risk-free assets like government bonds. Understanding the equity risk premium is vital for estimating the cost of equity and determining if an investment opportunity is worthwhile.
Discounted cash flow (DCF) analysis is a method used in corporate finance and valuation to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment. What is a Discounted Cash
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is perhaps the most important financial metric used in valuing companies. EBITDA as a metric was pioneered by companies like Donaldson Lufkin and Jenrette (DLJ) during the high yield bond boom of the 1970s and 80s. This gave the impression that companies were less leveraged than they
Financial modelling and forecasting is a crucial life skill for anyone with ambitions to be an entrepreneur or who wants to be in management in business. The expertise in accounting and Excel that you will develop will lead you inevitably to understand where value comes from in a business and where it is destroyed. You
The Internal Rate of Return (IRR) can be viewed as the rate of return implicit within a set of cashflows. It could be interpreted as a sort of compound average growth rate (CAGR) – because it essentially is, but the cash flows are periodic rather than from one point in time to another. Think of
Payback period is a fundamental investment appraisal technique in corporate financial management. It is a measure of how long it takes for a company to recover its initial investment in a project. It is one of the simplest capital budgeting techniques and, for this reason, is commonly used to evaluate and compare capital projects.
What is Compound Annual Growth Rate? Compound annual growth rate (CAGR) is a useful metric for presenting a variable growth trend by its implied weighted-average compound growth rate over a period of time: It smooths out volatility in growth and accounts for the compounding effect from year to year. CAGR represents the constant