The primary purpose of any business is to produce goods or provide services in a way that they have a higher value for the customers than the original cost for the firm. Companies engage in numerous activities while converting inputs to outputs. Porter’s Value Chain helps us create a clear Read more…
Introduction Opportunity cost represents the benefits the business misses out on when picking between alternatives. When we have two desirable options, the benefit from the one not chosen is our opportunity cost. These costs are usually the result of bottlenecks in business processes. Therefore, finance professionals use Opportunity Cost analysis Read more…
The Net Present Value (NPV) is a profitability measure we use to figure out the present value of all expected future cash flows a project or investment will generate, including the initial capital we invest. It shows us the difference between the current value of cash inflows and outflows over Read more…
Introduction We perform a liquidity ratio analysis to evaluate the ability of the company to settle its obligations on time. The most common use case is when lenders and creditors want to gain a better understanding of the financial health of a borrower or customer. Analysts use the gained insights Read more…
If you are already familiar with the outlined concepts, maybe you would be more interested in taking a look at the Excel model, which you can download below the article. Introduction Long-term (non-current) assets of the company have a long useful life (more than one year). When acquiring capital assets, Read more…
Introduction to the Dividend Discount Model The Dividend Discount Model (DDM) is used to estimate the price of a company’s stocks. The model is based on the theory that the present value of the stock is equal to the present value of all future dividend payments when discounted back to Read more…
Introduction The Contribution Margin is a significant financial metric that is sometimes neglected by managers. While profit margin is one we usually hold very important, it gives information only on the amount with which revenues exceed costs. On the other hand, Contribution Margin provides us with a way to see Read more…
What is Materiality The materiality of a transaction amount or a financial statement line item is determined based on the impact of a misstatement of information on the intended users of that information. If the stakeholder is most likely to alter their actions if we presented the information correctly, the Read more…
Introduction to Decision Trees We use Decision Trees to clarify the expected value of capital investment opportunities. Decision Trees can also be helpful in business operations, where companies continuously struggle with big decisions on product development, operations management, human resources, and others. With Decision Tree analysis, we can better evaluate Read more…
Introduction The Pareto Analysis is a statistical technique employed in decision-making to identify a limited set of tasks to produce the most significant effect. We base it on the Pareto Principle, which stipulates that 20% of the work on a project generates 80% of the outputs. The technique is also Read more…