Monthly Archives: October 2023

Dividend Coverage Ratio (DCR): Definitions, Formulas, and Examples

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

By |2024-02-12T17:17:21+00:00October 23rd, 2023|Investing|Comments Off on Dividend Coverage Ratio (DCR): Definitions, Formulas, and Examples

What is an Annuity?

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)

By |2023-12-05T10:57:19+00:00October 23rd, 2023|Investment Banking and Corporate Finance|Comments Off on What is an Annuity?

Basis Points (BPS) Explained: Definitions and Examples

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

By |2023-12-05T13:41:42+00:00October 23rd, 2023|Investing, Uncategorized|Comments Off on Basis Points (BPS) Explained: Definitions and Examples

Equity Risk Premium (ERP): Definitions, Formulas and Examples

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.  

By |2023-10-23T16:57:15+00:00October 23rd, 2023|Valuation|Comments Off on Equity Risk Premium (ERP): Definitions, Formulas and Examples

Discounted Cash Flow Models (DCF): Guide and Examples

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

By |2023-11-09T13:17:05+00:00October 17th, 2023|Valuation|1 Comment

EBITDA Explained: Definitions, Formulas and Examples

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

By |2023-10-19T09:53:06+00:00October 17th, 2023|Valuation|Comments Off on EBITDA Explained: Definitions, Formulas and Examples

Financial Modelling Guide: Model Types and Examples

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

By |2023-10-19T09:11:03+00:00October 17th, 2023|Financial Modeling|Comments Off on Financial Modelling Guide: Model Types and Examples

Internal Rate of Return (IRR): Formulas, Examples and Implications

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

By |2023-10-19T09:49:09+00:00October 17th, 2023|Valuation|Comments Off on Internal Rate of Return (IRR): Formulas, Examples and Implications

Payback Period Explained: Definitions, Formulas and Examples 

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.  

By |2023-10-19T09:47:46+00:00October 17th, 2023|Investment Banking and Corporate Finance|Comments Off on Payback Period Explained: Definitions, Formulas and Examples 

What is Compound Annual Growth Rate (CAGR)?

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

By |2024-01-03T18:58:54+00:00October 9th, 2023|Financial Modeling|Comments Off on What is Compound Annual Growth Rate (CAGR)?

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