Business valuation
What Is Equity Risk Premium?
What Is Risk-Free Rate?
What Is Free Cash Flow to the Firm?
Free cash flow to the firm (FCFF) is the cash flow that a company is ‘free’ to distribute to all providers of money (both, debt and equity) without damaging its growth opportunities. Below I explain the process an analyst would go through to estimate free cash flow. Like all forecasts, your FCFF starts with your…
WACC Theory vs. Reality: Why Textbook Assumptions Break Down in Practice
The weighted average cost of capital (WACC) is one of the most important numbers in company valuation, and one of the hardest to estimate accurately. In theory, WACC is a clean formula that blends a company’s cost of equity and after-tax cost of debt into a single discount rate. In reality, every input in that…
8 Value Investing Icons
Value investing is the idea that you can achieve superior investment performance through buying stocks at prices that appear to be below the “intrinsic value” of the business. The origin of the tools to perform this analysis comes from Benjamin Graham and David Dodd’s 1934 book, Security Analysis. The investor tries to estimate the intrinsic…