Blog Posts

Below we’ll go through the four main ways debt crises can be rectified and how these levers are normally used. Debt defaults and restructurings Getting rid of bad debts – i.e., debts that won’t produce more than they cost – is vital for the future flow of capital and for a return to good economic […]

In this article, we’ll go through a hypothetical M&A transaction to look at the basic components and how to analyze one (M&A analysis). M&A analysis is important as mergers, acquisitions, and business combinings are a big part of the financial world. Many financial professionals – investment bankers, private equity, hedge funds and traders (e.g., merger […]

In this article, we’ll go over how to complete a cash flow statement from the income statement and balance sheet and how to analyze and interpret the cash flow statement. In accounting, the balance sheet, income statement, and cash flow statement are referred to as the “three statements.” Let’s go through each individually: Balance Sheet […]

We’ve covered valuation models from discounted cash flow to options pricing, to 1-/2-/3-stage growth models, and with respect to free cash flow to the firm (FCFF), free cash flow to equity (FCFE), dividend discount (DDM), economic value added (EVA), over a host of different scenarios. But how do we know which business valuation model is […]

In a different article, we introduced the FCFF valuation model. Here we will tie in the FCFF model with EVA (economic value added), a financial metric that estimates a company’s profit through the net surplus created from its investments. Mathematically, it can be expressed as (Profit of the firm) – (Cost of capital of the […]

Trading is like other businesses where you can achieve better results if you can achieve synergy. Synergy refers to using various parts of a portfolio in ways that help support and reinforce the other. We talked in separate articles about how having differentiated, uncorrelated returns streams in a portfolio and balancing and blending them well […]

Valuation multiples are a key component of financial modeling in assessing the value of a company. It is based on the idea that similar assets will tend to sell at similar prices, equivalent to the concept of how three-bedroom/two-bath houses sell for around the same price as others in a particular geographical area in a […]

Free cash flow to equity (FCFE) is another discounted cash flow model of how to calculate company valuation. It is a measure of how much cash can be provided to equity shareholders of a firm when all expenses and debts are accounted for (i.e., levered cash flow). In a way, it is similar to dividends. […]

Inflation generally causes the Fed to tighten monetary policy. This impacts asset classes by removing liquidity from the financial system.  Namely, the process of raising interest rates and/or slowing the pace of central bank asset purchases slows money and credit creation. This is the point at which you often see the classic moves that mark […]

FCFF is an acronym for “Free Cash Flow for the Firm” or “Free Cash Flow to the Firm” and represents a measure of financial performance related to cash flow. The popularity of the FCFF valuation model stems from its ability to obtain an accurate valuation of a firm based on a collection of basic inputs. […]