Understanding Finance

The slowing global macro backdrop is feeding through to the performance of a range of businesses.

A question I am frequently asked is how do we analyse stocks? How much emphasis do we place on valuation? And how much do we place on company analysis, in terms of assessing quality and growth…

A core method we, as equity analysts, use to calculate and estimate the present value of the companies we invest into on behalf of clients is the discounted cash flow model (DCF).

A dual-listed company (DLC) is a company that is listed on multiple exchanges.

In theory, the definitions of an investment or an expense seem quite clear cut. An investment, so the theory goes, is spending which creates an asset which will help produce profits over a number of…

Usually, your bank would pay interest on your savings accounts. Negative interest rates turn this around and mean customers have to pay banks to hold their savings.

You probably sort of know how index linked gilts, or “linkers,” work. The redemption value is linked to the change in the retail price index, or RPI, that takes place over the life of the gilt. 

There are many models to choose from when valuing a company and your choice depends on the company as well as what your aims are.

Younger and more socially conscious investors have increased demand for Environmental, Social and Governance (ESG) compliant portfolios. This in turn has driven demand for a new class of ESG compliant…

Businesses that benefit from the network effect are said to see the value of their product or service increase with the number of users. This may sound simple, but it is actually quite uncommon and is…

The first of his McKinsey Awards was for "How Competitive Forces Shape Strategy" in which he highlights his five forces that identify how competitive and potentially attractive an industry is. Once…

Maintenance capex can be considered the cost of sustaining current revenue and profits for a business. This type of outlay is equivalent to a normal operating expense; such an example would be the…

The balance sheet is a list of (a) what a company owns less (b) what it owes with the balance being (c) the value that is attributable to shareholders.

= Earnings before interest and tax/Interest

If you buy a bit of metal for £90, turn it into widgets and sell them for £270 then you have made a cash profit of £180….

There is much speculation surrounding the ‘science’ of profit warnings, their predictability and recurrence in particular. The best publicised being the fabled wisdom that they come in threes.…

EBITDA is the cash profit and actually stands for Earnings Before Interest Tax Depreciation and Amortisation (“D&A”).

Measures the compound annual growth rate (CAGR) of earnings per share.

= Free cash flow/Revenue

Price/Earnings Ratio or PER is a measure of value for a company’s shares.

The simplest definition of beta is that it is a measure of risk. Whilst I won’t derive the mathematics from first principles, it is worth saying that it is calculated by taking the correlation of an…

= (Debt-cash)/Earnings before interest, tax, depreciation and amortisation

Costs can be Fixed or Variable.

= Net income/Shareholders’ equity

= Earnings before interest and tax + Fixed Charges/Fixed Charges

You may have heard of a "rights issue" being referred to as a last resort for a business who is looking to raise capital. This is often true and is the issuing of shares by a company at a discounted…

Compound interest is, simply put, the addition of interest upon interest. For example, if in year one I was to place £10 on deposit, on which I were to receive 10% interest, at the end of year one my…

Whilst an increase in dividends per share tends to be viewed as a positive by investors, it must be considered in proportion to earnings per share. This is an equation known as the dividend pay-out…

Suppose you are consistent in the times that you eat your three wholesome meals: at 8am, 12:30pm, and 6pm. Twice a year, the setting sun will correlate with you tucking into your dinner. Were an…

There are two sets of accounting standards which dominate the world. The IFRS Foundation has oversight of the International Accounting Standards Board who publish the IFRS or International Financial…

Index-linked gilts, or “Linkers”, are sold by the Debt Management Office (DMO) on behalf of the UK government and have both the coupon and the capital elements linked to inflation.  I’ll use the…

Accountants provide us with something that they call Cashflow from Operations, which is pretty much what the widget machines produce in terms of net cash, after paying interest and tax. This is set…

So, here is an easy way to raise money at your next charity auction. Get a large glass jar, fill it with at least one hundred one pound coins and auction it.

Corporate finance is often about understanding unavoidable conflicts of interest and then making sure that they are dealt with as best can be.