## Value Chain Analysis Break-down

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…

## Quick Ratio in Financial Analysis and Modeling

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…

## Dividend Discount Model in Financial Analysis

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…

## 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: Companies have cash flow projections for a reasonable Read more…

## Sales Trend Analysis and Forecasting in Excel

Introduction to Sales Trend Analysis Sales Trend Analysis looks at historical revenue data to identify patterns, used extensively in budgeting and forecasting. It is a useful method to detect short-term changes in revenue growth and performance. Trends A Trend is an upwards or downwards shift in the development of a Read more…

## Sensitivity Analysis in Financial Modeling

Introduction to Sensitivity Analysis We apply Sensitivity Analysis to a financial model to determine how different values of an independent variable affect a specific dependent variable under a given set of assumptions. We also refer to it as ‘what-if’ or simulation analysis. Performing such analysis helps us predict better the Read more…

What is a Leveraged Buyout (LBO) Transaction? A Leveraged Buyout (LBO) transaction is the acquisition of an entity using significant amounts of loaned capital to meet the consideration. LBO transactions can go up to 9:1 ratio of Debt to Equity. In a Leveraged Buyout transaction, the target company’s assets become Read more…

## Understanding the Weighted Average Cost of Capital (WACC)

Introduction The Weighted Average Cost of Capital (WACC) shows a firm’s blended cost of capital across all sources, including both debt and equity. We weigh each type of financing source by its proportion of total capital and then added together. Financial analysts use WACC widely in financial modeling as the Read more…

## Least-Squares Method to Estimate the Cost Function

Introduction Linear regression is considered the most accurate method in segregating costs into Fixed and Variable components. Like the High-Low Method and other methods, the Least-Squares Method follows the same simple linear cost function: However, most people consider the Least-Squares Method more accurate, as it computes Fixed and Variable Costs Read more…

## 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, Read more…