Investing for Beginners .EU, investing Wall Street people learn nothing and forget everything.
Benjamin Graham

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Investing in Russia
  Investing in Russia has gotten really widely promoted for the last period. I can remember the talks that stocks in Russia are the cheapest over the world for not less than year. The fact, that those stocks are st

Investment in Bulgaria
  Starting from the very beginning I will try to make clear why I am bullish about investing Bulgarian stock market. At first I would suggest to look at the chart below.   Five year Bulgarian stock market in

Investing in Land - Agricultural REITs
  Investing in land I have noticed an increased interest in agricultural land investments during the last period. And I can it understand completely. When stocks are so volatile and bonds may offer such low return

Bond Investment: Government Bonds and Corporate Bonds
  Corporate Bonds and Government Bonds   Today I want to discuss another untraditional topic. However, this topic concerns the most traditional investments – bonds. Bonds been used for very long time a

How ECB Is Affecting Investment Markets?
  Today was announced very interesting news. The news is about the fact that ECB (European Central Banks) lends 489 billion of Euros to the banks. It is a really huge amount of capital that flows from ECB to the fi

What means long term in investing?
When I talk to non-professional investors, I often get surprised on their interpretation of ‘long-term investment’. Of course, everyone wants to enjoy their lives and to do it fast, while not many are ready t

Learning the basic investment concept: a good start in investing
The first step in investing is learning the investment concept itself. It is very important that you understand the basic rules in investing in order for your investment to profit and to prevent losses. As we all know,

BRIC Countries
  BRIC countries are the largest emerging economies over the world. The first letters of every country make a name of B R I C and those countries are: Brazil (population - 192m) Russia (population - 143m) Indi

Investment in Stocks
Stocks (shares) are investments that attract the most attention in financial markets, and perhaps stocks are worth it, because investors can expect the highest return from stocks among the range of traditional investme

Terminal Value
  Terminal value is a value of the business (or other asset) used in discounted cash flow (DCF) method that is added after the discontinuing of the cash flow forecasting.   DCF valuation is based on the sum

Investing Benefits For Beginners
Is the investment really worth it? Many investing beginners ask a question: why to invest?  There can be different answers. Some might even say that is not worth to invest. Why let your money into uncertainty if yo

Net Debt
  Definition   'Net debt' is used quite often in finance and it is equal to financial liabilities of the company that are reduced by the cash amount (and cash equivalents) that are held by the company.

Investment Objectives for Beginners
The full investment objectives for beginners are very individual parameters. They were already mentioned briefly in article about benefits of investment. However, the basic investment objective is one - to make capital w

Investment Manager
Investment management or finance management are particularly a lot of attention and responsibility requiring areas. It does not matter whether you manage your money whether corporate funds, in any case, it is important t

Investment Book:
  Investing for Beginners Exposed: Or What Investment Consultants Hide from You   Rokas Lukosius (Author of the book and this website)   No matter whether you are a seasoned inv

Investment Securities
  Investment securities may have different understandings as a term, but most commonly investment securities are securities held on investment purpose to get a return from invested capital over mid-long term.

Investment in Short ETF
  Investment in Short ETF is very different from regular investing. “Short” – means short selling transactions when securities are loaned and sold with obligation to return it after some pre-agree

Investment Definition
  Investment definition may have two meanings:   1) An investment as a process (investing) when tangible or financial assets are acquired on purpose to earn more money (or other material benefits) than was s

Investment Industry
  An investment industry is a part of whole financial industry of the world. Finance sector includes not only investment industry but also other financial services: corporate finance, public finance, insurance

  A shareholder (stockholder) is a individual or company that owns some shares of stock in a corporation. Technically, every investor who is investing in shares is a shareholder for as long as he holds those s

  An investor is an individual or corporate unit that invests in any class of investments on purpose to earn some return from invested capital. There may be more criteria to distinguish very small investments

Stock Split
  A stock split is a divide of existing company’s shares decreasing its face value. For every owned share an investor gets a several (or one) additional shares depending on split ratio, and the total out

Stockholder Wealth Maximization
  Stockholder wealth maximization is a main goal for firm’s managers in corporate finance. Stockholder wealth maximization is above the profit maximization because of long term orientation and better risk man

  Dividends are capital payments from companies to theirs shareholders. Normally dividends are paid by cash and usually but necessary once a year. Every company’s common share of the same class gets equal div

Dividend Yield
  A dividend yield is a ratio that shows how much investor gets dividends from the stock compared to its price. It is calculated dividing dividend per share by the share price.    Dividend yield is impo

Dividend Payout Ratio
Payout ratio is a percentage that shows a portion of company’s income distributed as dividends.    Formula Dividend payout ratio = common shares dividends / net income   *For the sam

Dividend Stocks
  Dividend stocks are called stocks that have high dividend yield and high dividend payout ratio. Normal dividend stocks should have stable 6%-10% dividend yield and possible 60-100% dividend payout ratio. High div

Ex-Dividend Date
  Ex-dividend date is a first day when investor does no longer receive dividends paid by company’s shares. This is important factor because the period of shares' settlement after transacti

Stock Buyback
  A stock buyback (share repurchase) is a company’s purchase of its own stock on the market. It is contrary way to pay out capital for shareholders to dividends. Stock buybacks are getting more and more

Initial Public Offering (IPO)
  An initial public offering (IPO) is a first introduce of company’s shares to the stock market. However, during initial public offering shares are sold not on the stock exchange but on network of clients by

  A greenshoe is an option to sell or buy shares during initial public offering IPO. This option is agreed between the company that goes public and the IPO organizer (some corporate finance firm).   The

  Flipping is partly an investment strategy, partly a speculation when investor resells acquired property quickly on purpose to get fast profit.    Flipping is most common in IPO’s when retail inv

Market capitalization
  Market capitalization (market cap) is a company’s value (price) on the stock exchange. Market capitalization is calculated by multiplying the outstanding share number by the last share price on the exchange

Buying on Margin
  Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons Psychology: Is it worth?     Buying on margin gets popularity during every strong bull market. Unfortunately, it be

Investment Group
  An investment group is an organization, which activity is closely related with investment. Still there can be no exact definition what investment group does because they might have different juridical forms

capital Investment Group
  capital investment group is an organization that can have many juridical forms. Usually capital investment group is privately held or public organization, that invests in stakes of non-listed companies, real esta

Real Estate Investment Group
  Real estate investment group is mostly similar to the capital investment group. The main difference is that real estate investment group concentrates its investments on real estate property, when capital investme

Financial Investment Group
  Financial investment group usually is different from capital investment group. Regularly financial investment group includes a brokerage firm and provides standard functions: financial consultations, investment m

Venture capital
  A venture capital is a capital provided by capital investment groups or private equity funds for small start up businesses.   There are not many opportunities for young fast growing companies. If they

Real Estate Investment Trust (REIT)
  Real estate investment trust (REIT) is a corporate entity that invests exceptionally in to real estate sector. Usually securities of REIT’s are traded on stock exchange and every investor can easily acquire

Mutual Fund
  A mutual fund is a collective investment vehicle that is consisted of fund units, which are sold for retail investors. Practically, mutual fund is a large investment portfolio, in which can take a part even small

Pension Funds
  Pension funds are investment funds established on purpose to generate income for retirement. They are very useful in economy when society gets older and number of population decreases, because a working class is

Large Cap Stocks
  Large cap stocks are stocks of those companies that have the highest market capitalization. All the stocks can be classified to large cap, mid cap and small cap (if ignoring modern classifications that include mo

Small Cap Stocks
  Small cap stocks are stocks of lower market capitalization. All stocks may be classified to large cap, mid cap and small cap (if ignoring mega, nano and other modern classification caps). There is no united class

Investment Bank
  An investment bank is a financial institution that has a license of bank and specializes exclusively on investment services. In the USA investment banking services was separated from other banking activity u

Investment Banking Services
Investment banking services are corporate finance services provided by investment banks. Investment banking includes such services like capital rising, securities issuing, IPO’s running, mergers and acquisitions

Insurance Company
  An insurance company may provide insurance services of two different directions: life insurance and non-life insurance. Non-life insurance is not very closely related (if to mention own insurance company’s

  A partnership is a business form created by not less than two parties and is non corporate business form.  Partnership may have different forms and usually is made by contract. Most often in current days par

  A corporation is a legal business form that is dominating over capital world. Most of the biggest businesses in the world are working under corporation form. capital raising, transferring of shares, mergers &

Limited Liability Company
  A limited liability company (LLC) is a business form that has the same advantage like corporations have: a limited liability. Owners of LLC risk only their capital that was invested in company. Limited liability

Publicly Owned Corporation
  A publicly owned corporation is a company, which has its shares listed on the stock exchange. A publicly owned companies normally are medium or large scale corporations owned by a large number of investors (both

capital Markets
  capital markets are the markets, in which stocks and medium to long term bonds are traded. Could be said that capital markets include stock markets and bond markets and are a part of financial markets.   C

Primary Markets
  Primary markets are the markets, in which new capital investments are raised. The perfect example of primary market is an IPO, but even if it is not the first issue of securities for the company, it still counts

Enterprise Value
  Enterprise value (EV) is a financial measure that is used to reflect the magnitude of the business. If market capitalization shows only the value of shareholders equity, enterprise value includes both: equity val

Penny Stocks
  Penny stocks used to be described as stocks which price on stock exchange are lower than 1$ or 5$ (there is no officially approved norm). However, it is not very fair to judge a company for its share price on exc

Corporate Finance
  Corporate finance is a niche of finance that deals with financial questions related to corporations.    The main goal of every company should be stockholders wealth maximization, but to achieve that m

Financial Leverage
  A financial leverage is a use of borrowed money to achieve more efficient capital structure. A borrowed capital is cheaper than equity capital most of the times. So usage of loaned money makes weighted average ca

Direct Investments in Stocks
  Direct investments in stocks are investments made without financial intermediaries (only theoretically). It means an investor buys stock directly from the company without intermediation of stock exchange or broke

Investment Management Fees
  Investment management fees (fees that are paid straight to investment manager) basically are one of these types:   Performance based fee. Performance based fee is calculated according to increase of inve

Quantitative Investment Management
  Quantitative investment management says, “Don’t worry about investment management, and let to do the job for the computer”.  It is a completely different approach compared to ‘value d

Working capital
  Working capital can be calculated from balance sheet data. There are few ways to calculate working capital, but the most accurate is this one (for operating working capital):   Working capital = total curr

Working Investment
  Working investment mostly refers to working capital, which is equal to current assets less current liabilities.    The other meaning of working investments might be that those are investments that are

Foreign Investment
  Foreign investment means investment that is made by foreign capital. For example if you would invest in other country than you live (you are resident), then it would be a foreign investment. Also it can work othe

Foreign Direct Investment
  Foreign direct investment (FDI) traditionally was understood as investment that is made by foreign country in direct assets, for example factory, including land, building and machinery. When financial markets evo

Return on Investment
  Return on investment (ROI) is a percentage that shows profitability of an investment or investment portfolio. Return on investment calculation:   CALCULATION:   Return on investment = net in

Margin Trading
  Margin trading is trading in securities when part of the investment portfolio is financed by borrowed money (the other part by your own capital). For example, you have investment portfolio of value $20k, end you

  Stagflation is an economical situation, when high inflation and stagnation of the economy come together. It is very difficult situation, because it not allows using monetary politics efficiently to revitalize the

P/E Ratio
  P/E ratio is the most popular valuation multiple that is used for stock analysis. This ratio shows the price of the stock compared to its earnings. The multiple is so popular because of its simplicity and im

P/B Ratio
P/B (P/Bv or price-to-book) ratio shows how expensive stock is compared to its books value. Company’s book value (also called equity, capital, shareholders funds etc.) is equal to company’s total assets les

P/NAV Ratio
Price to Net Asset Value    P/NAV ratio shows how expensive share is compared to its NAV (net asset value). This ratio is very similar to P/B ratio but in this case market values (not book values) are used. M

EV/S Ratio
Enterprise Value to Sales Ratio   EV/S ratio shows how expensive firm is compared to its sales. This multiple is important when company is unprofitable or profits margins are very low and turnaround is expected in

P/S Ratio
Price to Sales Ratio   P/S ratio shows the price of the stock compared to its sales. This ratio historically was quiet popular, but now EV/S ratio, which is more correct methodically, is used.

EBITDA Multiple   EV/EBITDA ratio shows how expensive firm is compared to its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). EV to EBITDA multiple is mostly used by professionals because

Cost of Equity
  Cost of equity is the rate of return that is required by equity owners from their investment. Of course, requirements of the shareholders have to be real and meet market conditions as well. Basically cost of equi

Relative Valuation
Comparative analysis    Relative valuation is stock valuation method that gained its popularity because of simplicity and practical importance. The key principle of relative valuation is about valuation multi

DCF Valuation
Discounted Cash Flow Analysis   DCF valuation might be applied to any asset that generates positive free cash flow or is expected to generate that cash flow in the future. DCF valuation might be directly applied t

Replacement Cost Valuation
  Replacement cost valuation method is not very popular at stock valuation. Most of the investors are picking stocks with help of relative valuation or DCF valuation. Only when those two methods aren’t possib

  WACC (Weighted Average capital Cost) shows cost of capital when capital is consisted of both equity and debt capital. So WACC simply calculates the weighted average between equity cost and debt cost.

  CAPM (capital Asset Pricing Model) is method widely used for equity cost calculation. Equity cost should show the return that investor should expect/seek from an investment that contains specific level of risk.&n

  Warrants are derivative securities that give the right to acquire shares of the issuer at the predetermined price and time. From the holders position there is no difference between warrant and call option. The ma

Political Risk
  A political risk is related to political decisions and political environment development, and is one of the main risks when investing in emerging markets. Developed markets also contain political risk, but there

Target capital Structure
  Target capital structure is a mix of equity and debt capital that maximizes value of the shares. Target capital structure may be achieved when WACC (Weighted Average capital Cost) is minimal. If proportion of equ

Inventory Turnover Ratio
  Inventory turnover ratio shows how quickly company’s inventory is changing compared to its sales or cost of goods sold. This ratio shows how effectively inventory is managed in company’s production/di

Days Sales Outstanding
  Days sales outstanding (DSO) shows how quickly company collect its money from sales. Usually company doesn’t get paid immediately; depending on business and distributors network such period may be from seve

Total Assets Turnover Ratio
  Total assets turnover ratio shows how much of sales company’s assets are generating. If the company has a lot invested in assets, but do not generate a lot of sales from those assets, it may show some ineff

  EBITDA margin is a profitability margin that shows how much of EBITDA earns company’s revenue relatively. The EBITDA margin is the best for profitability comparison of the companies if you want to measure e

  ROE (Return on Equity) shows profitability of company’s book value. Company’s book value (equity) is equal to company’s assets less liabilities, and ROE is usually higher if company ha

  ROA (Return on Assets) shows what profits are earned by company’s assets. Of course, assets alone usually do not earn the profit, because most of the times profit is the result of know-how and hard work of

Margin Call
  Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons Psychology: Is it worth?     Margin call is a fabulous term which carries some mysticism. However, there is nothing

The Pros and Cons of Buying on Margin
  Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons of Buying on Margin Psychology of Buying on Margin: Is it worth?     The opportunity provided by buying on margin i

Psychology of Buying on Margin: Is it worth?
  Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons of Buying on Margin Psychology of Buying on Margin: Is it worth?     For the conclusion I would like to say that bu

Costs of Buying Stocks on Margin
  Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons Psychology: Is it worth?     We won’t talk about the possible losses in here. The goal of this paragraph is t

Organic Growth
  An organic growth is a growth of the company when inner resources are used to get larger market share. Also organic growth may be achieved together with growth of the whole market segment or entering new markets

  Synergy is a popular term among management of the companies as well as among M&A participants. In finance synergy means a savings in some costs when several units are merged. The theory says it should be like

  An underwriter is a company (normally an investment bank) that organizes the selling of new security issues for the corporations. It is a financial intermediary that buys new issues of securities (shares or bonds

Leveraged Buyout
  A leveraged buyout (LBO) is a takeover of a company when debt capital is the main financing source for the acquisition and the acquired assets are used as collateral to receive the needed debt. The LBO may be exe

Management Buyout
  A management buyout (MBO) is an acquisition of a company when company’s management gets the control interest in the company. Management buyout can be placed on if existing shareholders agree to sell their s

Employee Stock Options
  Employee stock options are options that are given to employees as part of motivation package and gives an opportunity for employees to acquire shares of the company in the future at a lower price. In their meanin

Go Public
  Go public means to get company’s shares listed on the stock exchange; the process also called floatation. To go public, company has to hire some investment banking firm that would help to execute an IPO (in

  Floatation means going public through an IPO. If companies go public they have to get listed their shares on some stock exchange. Each company’s may choose any stock exchange, but normally smaller companies

Par Value
  Par value also is called face value or nominal value, and is a nominal amount of money that shows how much of money is related to the security nominally. Par value is used most commonly for two types of securitie

Outstanding Share Number
  Outstanding share number is an important characteristic for the stock value of every stock company. This number represents all the issued shares in the company except the shares that are held by the company itsel

High Return Investments
  High-return investments (or high-yield investments) are investments that can provide the higher return than average investments, and of course such investments are riskier. The reality is that people have differe

Passive Income
  Passive income is an earnings that person receives consistently for a long term from some stable sources. One and most probable source of passive income may be income from investment.    For example,

Best Investments
  Best investments are always wanted, but the reality is that there are no best investments for everyone. And if such investment would exist then those investments would become an investment bubble and would not st

Money Investing
  Money investing is a hard task for beginners at investing. However, it is not a rocket science and can be learned by anyone who is really attracted to finances and have enough of time for it. Money is equal to ca

Stock Price
  A stock price is the last price of a share (stock) that was traded in a stock exchange for a particular stock. If stock exchange is closed at the moment, then the last stock price will be closing price for that s

Buying Stocks
  Buying stocks is an easy thing. Of course, it is harder to pick good stocks. Every person, that has some capital, can open a trading platform and buy stocks, but the goal is not only to buy the stocks but to make

Business Investor
  A business investor can indicate several types of investors. (1) Business investor may be an investor that is a firm and invests in different investments, or (2) investments that are made by any investor in to co

Small Business Investors
  Small business investors are private investors or business investors that are investing in to small businesses. Small businesses are also in need for capital and the best source for that capital might a bank beca

Angel Investors
  Angel investors are investors that have capital for investments and are investing in young companies that are in start-up stage and are needed for capital to exploit growth potential. The source of funding from a

Finding Investors
  Finding investors might be a hard task if you have no required knowledge for that. Most probably you are looking some business investors or angel investors that would invest in to your business. And the success o

Balance Sheet
  Balance sheet is one of the three main financial statements (others are income statement and cash flow statement). Balance sheet also might be called a statement of financial position because this statement expla

  Profit is a term used in various finance fields and may have many meanings. Basically profit is the positive difference between the income and costs. If costs are higher than income, then instead of profit loss w

  The term income may have several meanings. In corporate finance it basically means profit or earnings that are equal to revenue less expenses. But in some cases income may also indicate company’s revenue bu

Net Income
  Net income (net profit) is a financial indicator of the company that shows the real profitability of the business in accordance to its capital structure. Net income is equal to all revenue and gains less all expe

  Loss (net loss) is a financial situation of the company when its revenue is lower than expenses. It is natural that every company tries to receive a profit instead of a loss, but not every succeeds that. Some com

Gross Margin
  Gross margin is profitability percentage that shows the ratio between gross income and revenue. Gross margin is usually calculated when there is a need to compare company’s competiveness and effectiveness i

Operating Margin
  Operating margin is a profitability percentage that shows what company’s profit margin is before it pays interests and taxes. Operating margin simply ignores capital structure (because ignores financial act

  EBIT (also called Earnings Before Interest and Taxes) is a financial indicator of the company that provides information about company’s profitability while ignoring the impact of capital structure and corpo

Financial Analysis
  Financial analysis is an important part of investing, especially if investor wants better results from his investments. Of course it is possible to ignore financial analysis and make investment decisions based on

  Return analysis is different from profitability analysis because usually return is measured as a profitability of the assets, investments, capital or other similar asset group but not as a profitability of the re

  Solvency analysis takes an important part in financial analysis and mostly is used by creditors. Creditors of the business (bondholders, banks that provide loans) don’t care much if company’s profit w

Debt to Equity
  Debt to equity ratio (also known as D/E ratio, Debt/Equity) measures how big is company’s debt compared to its book capital (equity). The higher is the debt to equity ratio the higher is the insolvency risk

Debt to EBITDA
  Debt to EBITDA (also known as D/EBITDA or Debt/EBITDA) is widely used ratio that measures how big company’s debt is compared to its EBITDA (earnings before interest taxes depreciation and amortization). EBI

Financial Planning
  Financial planning is a type of financial analysis of which goal is to predict financial situation of the object in the future. There are two main trends where financial planning can be applied: in corporate fina

Turnover Ratio
  (1) Turnover ratio of mutual fund shows how quickly assets of the fund are changing. Actively managed investment funds have higher turnover ratio than passively managed funds, and normally turnover ratio is measu

Financial Forecasting
  Financial forecasting is a part of financial planning and also a part of a DCF valuation. But usually financial planning covers only a period of year or two while financial forecasting regularly covers about five

Strategic Financial Planning
  Strategic financial planning is a bit different from standard financial planning because standard financial planning focuses on a budget which is detailed estimation of financial statements when strategic financi

Asset Turnover Ratio
  Asset turnover ratio compares company’s sales and assets in order to identify the efficiency of assets used in the business. In simple words, it shows show much of sales are generated by company’s ass

Working capital Management
  Why Working capital Is Important? Working capital is one of the main parts of company’s finances and every manager, even of the small company, manages working capital despite the fact he knows about that o

Working capital Calculation
  There are few modifications of working capital calculation. All data that are needed for working capital calculation can be found in balance sheet (which is one the three main financial statements).

Working capital Ratio
  Working capital ratio may have several meanings in practice:   (1) Working capital ratio = Working capital / Sales (2) Working capital ratio = Current ratio = Current assets / Current liabilities (3)

Investments in Small Cap Stocks
  Investments in Small Cap Stocks Investments in small cap stocks could be compared to penny stock investments but the term ‘penny stocks’ is not specific enough. The thing is that the determination of

Cost of Debt
  Cost of debt shows what the capital cost of the company for its debt capital is. Basically company’s capital consists of two parts: debt capital and equity capital. (A mixed capital like mezzanine financing

  Opex (operating expense) are expenses of the business and are related to the operational activity of the company.  Basically, every company has few types of expenses: COGS (cost of sales) include costs t

Cost of Debt Calculation
  The cost of debt is easy to calculate if they are required data. Actually, there are few methods to get the cost of debt, but some of those are more accurate some less. If you want that your result would be more

Price to Free Cash Flow
  Price to free cash flow (P/FCF) or EV/FCF ratio are ratios that compare company's price to its free cash flow. The main difference between those two ratios is that EV/FCF also includes the eff

Price to Cash Flow Ratio
  Price to cash flow ratio (P/CF) and EV/CF ratio are similar but there are some differences. The main difference is that EV/CF also includes the effect of company’s financial debt which says a different

Free Cash Flow Yield
  Free cash flow yield (FCF yield) show how much of cash that may be distributed to shareholders the business earns compared to its price on the stock exchange (including both: equity value and debt value or just e

  Capex (capital expenditure) is company’s investment in long-term assets that are needed to continue the business or for future’s growth. The perfect examples of capital expenditure can be an acquisiti

Operating Cash Flow
  Operating cash flow or ‘cash flow from operations’ (CFFO) is one of the most important among financial indicators and is used to measure company’s results in cash terms. While net income or oper

  EBITA (earnings before interest, taxes and amortization) is a financial indicator that shows company’s earnings which are equal to pretax profit plus corporate tax and amortization.    EBITA is

Cost of capital
  capital of every company consists of two parts: equity capital and debt capital (only if company has no financial debts it has only equity capital). Both these capital sources have their costs and this is cost of

  What is beta? Beta is a ratio that measures volatility of an investment in relation to the whole market. In other words, it shows how the price of stock was changing compared to the whole market. Theoretically,

Share Issue
  Share issue may refer to a new share issue or an existing one. An issue of new shares is associated with capital increase of a company during IPO (initial public offering) or SPO (secondary public offering). All

Real Estate Flipping
  Real estate flipping always gets popular when economical cycle is increasing. It usually coincides with the period of real estate prices boom. It looks very simple when real estate prices are raising and some peo

  NOPAT (‘net operating profit after tax’ or ‘after tax operating profit’) is equal to operating profit less taxes. It is adjusted by tax rate because the part cost of debt which is part of

Rate of Return
  A rate of return is a percentage that shows what is the profit or loss gained on some investment on annual basis. There are many ways to calculate the rate of return including internal rate of return, arithmetica

Return on Invested capital
  Return on invested capital (ROIC) or also called return on capital is a financial ratio employed to measure nominal company’s return that is earned by capital invested in operating asset. Basically return o

  CFROI or cash flow return on investment is a rate of return that measures the performance of corporation based on its cash flow generation ability. CFROI is not very popular but is still used by some companies an

Financial Ratios
  Financial ratios are ratios that are used in financial analysis or in other words that are using financial data of a company. Such financial data usually is found in financial statements (income statement, balanc

Accounts Payable Turnover
  Accounts payable turnover ratio shows how quickly company is paying to its suppliers for services or goods and materials. If payables turnover is very low, it may signify different reasons behind it: Company i

Fixed Asset Turnover
  Fixed asset turnover ratio is a financial ratio that measures how much of sales are created by company’s property, plant and equipment. The ‘higher asset turnover’ is the better, because it mean

Receivables Turnover
  Receivables turnover ratio (also called as accounts receivable turnover) is a financial ratio that measures how efficiently company collects its receivables. If receivables turnover is very low, it means company

Average Collection Period
  Average collection period is a financial ratio that is used to measure how fast company collects its receivables. ‘Average collection period’ shows what is the average time period till company gets ca

Quick Ratio
  Quick ratio (also called ‘acid test ratio’) is a financial ratio that measures company’s financial liquidity. This ratio compares company’s most liquid assets and short-term liabilities. I

capital Employed
  capital employed is a value of capital investments in a company. Basically, the capital of each company can be classified in these types of capital: Equity capital  Debt capital Working capital

Current Ratio
  Current ratio is a financial ratio that measures company’s financial liquidity in short term. In simple words, this ratio compares company’s short-term assets to its short term liabilities. If short-t

Cash Ratio
  Cash ratio is a financial ratio that measures company’s financial liquidity over short term. It compares company’s cash reserves to short-term liabilities. If ‘cash ratio’ is high, it may

Equity Ratio
  Equity ratio is a financial ratio that compares company’s equity to assets. Basically, it shows what part equity capital makes in total capital of a company. If ‘equity ratio’ is very high (clos

Return on capital Employed
  Return on capital employed ratio (ROCE) measures company’s return compared to its employed capital. Return in this case is some kind of profit (mostly EBIT or NOPAT) and the capital employed means equity ca

capital Adequacy Ratio
  capital adequacy ratio is the main financial ratio for banks to measure whether the bank has enough of capital on which depends the riskiness of the bank. Banks are borrowing money from other depositors and it is

Net Interest Margin
Net interest margin shows the profitability of the lending business for a bank or other financial institution. Lending business is the core business for most of the banks, and the profitability of this operational segmen

Loan to Deposit Ratio
Loan to deposit ratio is financial ratio used for banks or other financial institutions. This ratio compares bank’s loan portfolio to deposit portfolio and measures financial liquidity of the institution.  &n

Reserve Ratio
  Reserve ratio (reserve requirement or cash reserve ratio) is a ratio that is used by central bank of an area to regulate the financial market. This financial ratio compares the cash of the bank to the deposits th

Cash Conversion Cycle
  Cash conversion cycle is a measure that shows how many days take to convert the cash of a company in to production and to sell it. However, the formula of conversion cycle also includes ‘days payable outsta

Days Payable Outstanding
  ‘Days payable outstanding’ ratio shows how long it takes the company to pay its liabilities to the suppliers. The longer period means that company is not in a hurry to settle up its debts to the suppl

Days Inventory Outstanding
  ‘Days inventory outstanding’ measures how efficiently company manages its inventory. Inventory often is the main part of working capital and it is very important to managed inventory efficiently. Ther

Cash Turnover Ratio
  Cash turnover ratio compares company’s sales to its cash and measures how effectively company is using cash assets. However, this financial ratio now is a bit outworn and is not very meaningful for most of

Liquidity Ratio
  Liquidity ratio is a ratio that measures company’s liquidity. At first, it is needed to mention that liquidity may have two meanings: financial liquidity of a company or market liquidity of some asset. Liqu

Equity to Asset Ratio
  Equity to asset ratio measures company’s riskiness by comparing its equity to its assets. If this ratio is very low (lower than 0.3), it might mean that company may be at risk if conditions of the market wo

Total Debt Ratio
  Total debt ratio compares total liabilities to total assets. The higher ratio represents riskier situation. And if this ratio is equal to 1.0, it would mean that liabilities are equal to assets or in other words

Gross Debt
  (1) Gross debt in corporate finance is often used as synonym for ‘total debt’, however there might be some differences depending on the version of the total debt. Technically, ‘gross debt’

Non-Operating Assets
  Non-operating assets are assets of the company that aren’t used in the main activity of the company. Such assets can be either financial or non-financial. This asset type is very important during the valuat

CAGR Formula
  CAGR formula is used to calculate 'compound annual growth rate':   CAGR = (Value at the end / Value at the beginning) ^ (1 / Years) - 1 * Can be multiplied by 100%. Where: Value at t

  CAGR is used to measure return and means compound annual growth rate. This type of return measurement is very popular in investment finance because interest also earns interest and power of compounding cannot be

Leverage definition In finance leverage means usage of debt capital in addition to the equity capital in order to increase the profit. Increase in leverage is understood as increase in riskiness and volatility.

Internal Rate of Return
  An internal rate of return (IRR) is a ratio used very often to measure a profitability of some investment project. IRR is determined as a discount rate when NPV of the project is equal to zero. If IRR is higher t

Privately Held Corporation
  Privately held corporation or closely held corporation is a company, which doesn’t have its shares listed on the stock exchange. If a corporation is closely held it not necessary means that it is small busi

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