This is the most comprehensive guide to Ratio Analysis / Financial Statement Analysis This expert-written guide goes beyond the usual gibberish and explore practical Financial Statement Analysis as used by Investment Bankers and Equity Research Analysts. Here I have taken Colgate case study and calculated Ratios in excel from scratch. Please note that this Ratio Analysis guide is over 9000…

## Nuts & Bolts of FCFE – Free Cash Flow to Equity

FCFE or Free Cash Flow to Equity model is one of the Discounted Cash Flow approaches (along with FCFF) to calculate the Fair Price of the Stock. FCFE measure how much “cash” a firm can return to its shareholders and is calculated after taking care of the taxes, capital expenditure and debt cash flows. In addition, FCFE model…

## Dividend Discount Model – Complete Beginner’s Guide

Dividend Discount Model – It is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments. In other words, it is used to evaluate stocks based on the net present value of the future dividends. Financial theory states that the value of a stock is the worth…

## Treasury Stock Method – Complete Beginner’s Guide!

Employee Stock Options are complex call options granted by the companies as a part of the remuneration package. When stock options are exercised in large quantitites, it can have a significant impact on the total number of outstanding shares thereby diluting the EPS and negatively affecting the valuations of the firm. To comply with GAAP, the dilutive impact of…

## Price to Book Value Ratio | Complete Guide

Price to Book Value Ratio is one of the most important ratios used for Relative Valuations. It is usually used along with other valuation tools like PE Ratio, PCF, EV/EBITDA etc. It is most applicable for identifying stock opportunities in Financial companies especially Banks. In this article, we discuss the nuts and bolts of Price to Book Value.…

## Quick Ratio| Calculation | Formula | Interpretation

Quick Ratio – Sometimes current assets may contain huge amounts of inventory, prepaid expenses etc. This may skew the current ratio interpretations as these items are not very liquid. To address this issue, if we consider the only most liquid assets like Cash and Cash equivalents and Receivables, then it should provide us with a better picture on the…

## Asset Turnover Ratio | Formula | Example | Calculation

## Types of Financial Models (Top 4 in Investment Banking)

Types of Financial Models – A financial model is an activity which involves a preparation of a model representing a real world financial situation. It is a mathematical model designed to display the performance of a Portfolio or certain financial assets of a business, project or any other investment. What is a Financial Model Types of…

## Enterprise Value | Definition | Formula | Calculation

Enterprise value considers much more than just the value of a company’s outstanding equity. It tells you how much a business is worth. Enterprise value is the theoretical price an acquirer might pay for another firm, and is useful in comparing firms with different capital structures since the value of a firm is unaffected by its…

## PEG Ratio | Formula | Calculation | Examples

PEG Ratio – Infosys was trading at very High PE Ratio in 1997-2000, However, most analysts during that time recommended a BUY for this stock? Why? They were looking at some other valuation parameter in conjunction with PE Ratio i.e. PEG Ratio. PEG ratio used to determine stock’s value while taking into account earnings growth. Infosys was growing exponentially during…

## Profit Margin | Gross | Operating | Net (Formula & Examples)

Profit Margin – Let us look at the example of Etsy above. We note that the Gross Margin of the company is around 64.5%, however, its Operating Margin and Profit Margins are negative at -0.69% and -19.8%, respectively. Why is this so? However, before we answer the question of “Why”, it is important to understand the…

## Callable Bonds | Definition | Example | Valuations

## Top 10 Best Mergers and Acquisitions (M&A) Books

## Put-Call Parity | Formula | Example | Dividends | Arbitrage

Put-Call Parity – As the name suggests, put-call parity establishes a relationship between put options and call options price. It is defined as a relationship between the prices of a European put options and calls options having same strike prices, expiry and underlying or we can define it as an equivalence relationship between the Put…

## Equity Strategies | Long Short | Pair Trading | Risks

source: Franklin Templeton Equity Strategies | Long Short | Pair Trading | Risks – An equity strategies are investment strategies either for an individual portfolio or a vehicle of pooled funds such as Mutual funds or hedge funds. This strategy has a focus exclusively on equity securities for the purpose of investment, whether it is…

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