Valuation Master Class

ROE is another method to measure the profitability of a company. The ROE divides the net income of a company with the shareholder’s equity.

The amount of time it takes a firm to convert its inventory into cash is known as the cash conversion cycle. In other words, it is the time taken for firms to convert their resources into cash.

The inventory conversion period is the timeframe that encompasses the process of obtaining the raw materials, manufacturing, to selling the product. It helps the firms estimate the timespan between the day raw materials are bought to the day the product is sold.

Capital budgeting is a process that helps determine whether a firm should invest in something or not. When businesses want to buy new long term assets such as new machinery or start a new project, it is imperative to consider if it would be worth it or not.

Compound interest is the interest on the initial principal as well as the interest from the prior periods. It is also referred to as interest on interest.

The WACC is the average cost of raising capital from all sources, including equity, common shares, preferred shares, and debt. It represents the required return firms should earn to satisfy their investors.

Return on invested capital is a method of calculation in which you measure the performance of a company in terms of profitability.

The YoY growth looks at a company’s performance/profit year after year or period after period. It compares the performance/profit and looks at how well the company is doing.

Future value is the value of a current asset at a specific time in the future calculated based on an assumed growth rate.

CAPM is a measure used by investors to evaluate the expected return on investments. It allows investors to diversify their investments to achieve the desired return based on the risk of each investment.