Cash Flow Statements: A Quick Guide
The Cash Flow Statement is one of the three primary financial statements. It outlines the sources & uses of cash by the company and has three main categories of cash flows: The Cash Flow Statement is an integral part of the company’s financial statements, alongside the Income Statement and the Balance Sheet. It adds more […]
How to Analyze the Accounts Receivable Turnover Ratio
The Accounts Receivable Turnover ratio (AR T/O ratio) is an accounting measure of effectiveness. It is also known as the Debtor’s Turnover ratio, and we use it to gauge how effectively the company manages credits they extend to customers and collection. We calculate the ratio by dividing net sales over the average accounts receivable for […]
Understanding The Value of a Budget
Introduction Running a business poses the threat of getting lost into the day-to-day issues the company faces. And this can mean we start to miss the bigger picture. Investing time and resources in creating a budget and a business plan is essential to ensure we form a proper long-term strategy for the business. A budget […]
Perpetuity Concept in Financial Analysis
Introduction The Perpetuity concept refers to the present value (PV) of equal periodic cash flows that investors will receive over an indefinite future period. We need to calculate the present value of perpetual cash flows for a variety of reasons, some being: In business and finance, perpetuity is a regular payout of the same amount […]
Time Value of Money Explained
Introduction To understand the Time Value of Money, imagine you were offered 100 euros now or 100 euros in three years, what would you prefer? If you are like me, you’d probably prefer the money now. But why is that, when a 100 euros has the same value now and in the future? Having it […]
Internal Rate of Return (IRR) in Financial Analysis
Introduction to Internal Rate of Return Companies undertake various projects with the end goal to either increase earnings or cut down costs. These projects often require that the entities make significant investments. In capital budgeting, the management of the business wants to have an estimation of the returns on such investments. The Internal Rate of […]
Capital Asset Pricing Model (CAPM)
Introduction The Capital Asset Pricing Model (CAPM) shows us the relationship between systematic risk for an investment and the expected return on it. Analysts and financial professionals use the model widely for pricing risky investments and generating expected returns for assets, considering the risk and cost of capital. The CAPM goal is to see if […]
Terminal Value of the Business
What is Terminal Value? The Terminal Value (TV), or as it is also known, continuing value or horizon value, is the value of an investment or a business at the end of a specific period. A firm or project potentially has an infinite life, meaning its value is the Net Present Value (NPV) of cash […]
Creating a Cash Flow Forecast Model
This week we will take a practical look at creating a Cash Flow Forecast model. What is a Cash Flow Forecast and Why we need one The Cash Flow forecast is a crucial planning tool for financial management. It is the process of preparing an estimate of future financial performance, based on anticipated cash disbursements […]