Author: John

Internal Rate of Return

Internal Rate of Return (IRR) is a discount rate at which the Net Present Value (NPV) of a project is zero. In other words, IRR is the discount rate at which the present value of all cash flow from a project equals its initial capital investment. IRR is one of …

How to Calculate Net Present Value

Companies and businesses use different tools in their capital budgeting and investment appraisal process. Some of these tools are simpler, while others require complex calculations based on the time value of money concept. One such tool that is most commonly used by businesses is Net Present Value (NPV). What is …

Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM) is a model that investors use to determine the rate of return of an investment. The model describes the relationship between the expected return of an investment and its risks. Furthermore, CAPM is one of the most commonly used models in finance for pricing …

Formula for Dividend Yield

The dividend yield is a financial ratio that represents the annual dividends paid to shareholders against a stock in relation to its current market price. In simpler words, the dividend yield measures a company’s dividends as a percentage of its stocks’ current market price. The dividend yield is a useful …

Arbitrage Pricing Theory

The Arbitrage Pricing Theory (APT) is a model that describes the relationship between the expected returns from an asset and its risks. Often used as an alternative to the Capital Asset Pricing Model (CAPM), APT is a multi-factor model for investments that explains the risk-return relationship using various independent factors …

Price Earnings (P/E) Ratio of Stocks

The price-to-earnings (P/E) ratio represents the relationship between the market value of the stock of a company and its earnings per share (EPS). It is one of the most commonly used and well-known ratios used by investors in valuing the stocks of a company. Other names for the P/E ratio …

Dividend Discount Model

The Dividend Discount Model (DDM) is a model used to predict the value of a company’s stock. The model bases its calculations on the theory that the value of a stock is equal to all its future dividends discounted to their present value. Investors and shareholders use DDM to evaluate …

Enterprise Value to EBITDA Multiple

Introduction The Enterprise Value to EBITDA ratio, also known as the EBITDA multiple, is a ratio used to measure the value of a company. Usually, the reason for calculating the EV/EBITDA ratio is to use it as a comparison tool between different companies. It can also be helpful in other …

Comparative Company Analysis

Introduction Comparative Company Analysis (CCA) is a process used to compare two similar companies, operating in the same industry. It is a valuation methodology that allows users to evaluate the ratios of similar public companies and use those ratios to derive the value of another company. CCA assists users in …

Discounted Cash Flow Model

Introduction The Discounted Cash Flow (DCF) model is a method that investors use to estimate the value of an investment based on future cash flows. The DCF model uses the forecasted cash flows of investment to determine its value today. However, this tool isn’t only for investors. Business owners and …