Perpetuities: Definitions, Concepts and Examples Perpetuities are an important concept in corporate finance and investment analysis. A perpetuity is a constant stream of cash flows that continues indefinitely into the future. Understanding perpetuities allows financial analysts to properly value assets and investment opportunities that involve long-term, ongoing cash flows. They are one the
Discount Rate Guide: Definitions, Formulas, Examples The discount rate is a crucial concept in corporate finance and investment appraisal. It is used to determine the net present value (NPV) of future cash flows thus accounting for the time value of money and enabling the comparison of projects and investments with cash flows spread over
Liquidity Ratios Guide: Types, Formulas and Examples Liquidity ratios are an important set of financial metrics used to analyse a company's ability to cover its short-term obligations. Companies fail not due to lack of profits in most cases, but due to their inability to meet their short-term cash requirements – i.e. they fail
Time Value of Money (TVM): Examples, Relevant Formulas and Interpretation Time Value of Money (TVM) is a core corporate finance concept that refers to the principle that money available now is worth more than the same amount in the future, due to its potential earning capacity today. The TVM concept underlies all calculations
Bond Duration Guide: Definitions, Concepts and Examples Bond duration is a key concept in investment management and corporate finance that allows investors and financial professionals to measure the sensitivity of a bond's price to changes in interest rates. Understanding duration is crucial for assessing the amount of risk associated with a bond investment
Derivatives, Swaps and Options: A Guide Derivatives are financial contracts that derive their value from an underlying asset or index – in fact, anything that has an objective, independent measure of value. They have become essential tools in corporate finance and risk management. Swaps, forwards, futures and options are common types of derivatives
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
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 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
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
