Understanding Finance

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. 

Another word for duration could be the average life of a bond. Most bonds pay annual or semi-annual coupons and have a redemption date. So whilst a bond maturing in three years and with a £5 annual…

The most commonly used multiplier model is the price- to-earnings (P/E) multiple. Very simply, a company with a high P/E may be considered overvalued when measured relative to peers. There are many…

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…

The accounting industry hasn’t always had the best reputation for providing financial transparency, but its origins are based on providing consistency to company reporting. Given the millions of…

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…

There are three things that this piece will look to address; what is the yield curve, what do we mean by a yield curve inversion and what is the economic consequence of a yield curve inversion?Imagine…

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…

Contemporary corporate finance theory says that the value of something is (a) the future expected cash flows discounted back to (b) their net present value.

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

As a general starting point, more debt makes a company more valuable to its owners.