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Understand the Market Value of Equity

The Market Value of Equity of the company, also known as Market Capitalization, is the total monetary value of the firm’s equity. We calculate it as the current stock price multiplied by the number of outstanding shares. Therefore the MVE continually changes, as these two values are quite volatile. Analysts mostly use the Market Value of Equity as a basis to calculate performance ratios. Investors use it to evaluate the size of companies and diversify their portfolio across investments of Read more…

By Dobromir Dikov, ago

Perform a One-Way Analysis of Variance (ANOVA) in Excel

The Analysis of Variance (ANOVA) has many varieties, but in essence, it has the purpose of evaluating whether factors are associated with any outcome values. And factors are categorical variables we use to group the outcome variables. In this article, we will not be focusing on the underlying statistical principles and formulas. We will briefly touch on how we define the two hypotheses of ANOVA and will then show how to implement the model in Excel, as part of our Read more…

By Dobromir Dikov, ago

Seasonality and Trend Forecast with Regression in Excel

In our last article, we discussed Seasonality in Financial Modeling and Analysis. We went over an example Excel model of calculating a forecast with seasonality indexes. Today we will use regression analysis in Excel to forecast a data set with both seasonality and trend. Let’s look at the quarterly sales revenue of the electronic cameras manufacturer GoPro (source: https://www.macrotrends.net/stocks/charts/GPRO/gopro/revenue). We have the data for the period 2013 to 2019. The aim is to create a model that can help us Read more…

By Dobromir Dikov, ago

Introduction to Seasonality in Financial Analysis and Modeling

Seasonality is a characteristic of time-series where the data has predictable and somewhat regular fluctuations that repeat year over year. It is safe to assume that any pattern of data changes over one-year periods represents seasonality. It is usually driven by weather or commercial seasons. We have to differentiate the term from cyclical data, as the latter can span over various times periods, shorter or longer than one year. Please, keep in mind that I am writing this article the Read more…

By Dobromir Dikov, ago

Consolidation of Financial Statements: A Brief Introduction

In finance terms, consolidation refers to the incorporation of the financial statements of all subsidiaries into the financial statements of the parent company. Consolidation of financial statements requires the parent company to integrate and combine all its financials to create a standard-form income statement, balance sheet, and cash flow statement, as part of a set of consolidated financial statements. Consolidation of Group Financials As per IFRS 10 Consolidated Financial Statements, consolidated financial statements are where the company presents all assets, Read more…

By Dobromir Dikov, ago

Forecast Sales Performance and Seasonality

We are approaching the second half of the year, and before we know it, it will be the time of year to start working on our projections for next year and the company’s annual budget. There are many complex and detailed models that we can utilize to forecast the sales performance of the business for the next period. However, I have recently noticed that almost every time I do work for a client, I end up using the most simple Read more…

By Dobromir Dikov, ago

How to Calculate the Beta of a Company

Beta is a risk-reward measure from fundamental analysis to determine the volatility of an asset compared to the overall market. We consider the market to have a beta of one. Then all assets are ranked based on their deviation from the market. If an asset’s returns fluctuate more than the market, then this asset has a beta of above one and vice versa. Higher coefficient is often associated with increased risk, but it also brings the potential for higher returns. Read more…

By Dobromir Dikov, ago

Black-Scholes Model: First Steps

Today we take a look at the most popular options pricing model. The Black Scholes Model, also known as the Black-Scholes-Merton method, is a mathematical model for pricing option contracts. It works by estimating the variation in financial instruments. The technique relies on the assumption that prices follow a lognormal distribution. Based on this, it derives the value of an option. It is more suitable for path-independent options, which the investors cannot exercise before their due date. This makes it Read more…

By Dobromir Dikov, ago

Sharpe Ratio and Risk-Adjusted Returns

In finance, one of the popular methods to adjust return rates of investments for risk is the Sharpe Ratio. William F. Sharpe developed the ratio in 1966 and revised it in 1994 to arrive at the formula we use today. Originally he called it the ‘reward-to-variability’ ratio. Later on, finance professionals started referring to it as the Sharpe Ratio. Investors use the Sharpe Ratio to understand how the return of investment compares to its risk. It’s the average return above Read more…

By Dobromir Dikov, ago

Optimal Portfolios and the Efficient Frontier

There’s a widespread assumption in investing that more risk equals increased potential returns. The theory behind the Efficient Frontier and Optimal Portfolios states that there’s an optimal combination of risk and return. The theory relies on the assumption that investors prefer portfolios that generate the most substantial possible return with the least amount of involved risk. We refer to these as optimal portfolios, and they form the efficient frontier curve. Optimal Portfolio An optimal portfolio is one that occupies the Read more…

By Dobromir Dikov, ago