Understanding our Burn Rate and Runway
What is Burn Rate? We call Burn Rate the rate at which it spends its raised funds to cover running costs. It is used with new companies and start-ups and is a measure of negative cash flow. Investors and managers usually state Burn Rate per month, but in crisis times, we can measure it on […]
Economic Value Added (EVA) Case Study: Nestlé S.A.
If you haven’t read the article on the Economic Value Added (EVA) metric, please, take a look here, before you read on. Introduction In today’s post, we are doing a short case study, trying to calculate the Economic Value Added (EVA) for Nestlé for FY 2018, using actual data available in the public domain. Nestlé […]
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 mathematically. When looking into costs, […]
Estimating Fixed and Variable Costs with the High-Low Method
Introduction The High-Low Method is a technique of cost accounting, which is used to split mixed costs into variable and fixed components. It is essential to note that the High-Low method is not very popular as it relies on extreme values of the population and can distort the cost distribution. However, the technique is one […]
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 […]
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 […]
Free Cash Flow (FCF)
This week we take a look at Free Cash Flow and how we can use it within a financial analysis setting. What is Free Cash Flow? The Free Cash Flow (FCF) represents the cash generated, after cash outflows to support the operating activities of the business and to maintain its capital assets. It’s a measure […]