Investing for Beginners .EU, investing An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.
Laurence J. Peter

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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 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

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

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

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

  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

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

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

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

  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

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

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

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

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

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.

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