Return on Invested Capital: Formula, Analysis, Examples Return on Invested Capital (ROIC) has emerged as a critical metric for evaluating a company's profitability and efficiency in utilising its capital. This performance indicator has gained significant attention from investors, analysts, and corporate decision-makers alike, as it provides valuable insights into a business's ability to

What is Valuation? Capitalism is a system in which private owners control private property and let market forces- supply and demand set prices. To make money in such a system, rational allocation of capital is the only legitimate route to success. Being able to value assets, market opportunities and businesses is therefore a

Derivatives, Swaps and Options: A Guide Derivatives are financial contracts that derive their value from an underlying asset or index – in fact, anything that has an objective, independent measure of value. They have become essential tools in corporate finance and risk management. Swaps, forwards, futures and options are common types of derivatives

Pecking Order Theory: Definitions, Concepts and Examples Deciding how to finance a company's operations and growth is a what corporate finance is all about! Companies must choose how to raise capital from various internal and external sources. The pecking order theory provides an influential model for thinking about how companies make these financing decisions.

Earnings per share (EPS) is a key metric used to evaluate a company's profitability on a per-share basis.  EPS indicates profitability for per ordinary share over the company reporting period and is disclosed in its financial statements – usually on the same page as the Income Statement. EPS provides insights into a company’s financial health

The equity risk premium (ERP) is a crucial concept in corporate finance and investment analysis. It signifies the additional return that investors demand to invest in stocks versus risk-free assets like government bonds. Understanding the equity risk premium is vital for estimating the cost of equity and determining if an investment opportunity is worthwhile.  

Discounted Cash Flow Models (DCF): Guide and Examples Discounted cash flow (DCF) analysis is a method used in corporate finance and valuation to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is perhaps the most important financial metric used in valuing companies. EBITDA as a metric was pioneered by companies like Donaldson Lufkin and Jenrette (DLJ) during the high yield bond boom of the 1970s and 80s. This gave the impression that companies were less leveraged than they

Internal Rate of Return (IRR): Formulas, Examples and Implications The Internal Rate of Return (IRR) can be viewed as the rate of return implicit within a set of cashflows. It could be interpreted as a sort of compound average growth rate (CAGR) – because it essentially is, but the cash flows are periodic