Provides a measure of strength of the balance sheet. Just as someone earning £100,000 per year would be more comfortable with a £500,000 mortgage than someone on £20,000, a business with a small amount of debt as a proportion of earnings would be more comfortable than vice versa.
= (Debt-cash)/Earnings before interest, tax, depreciation and amortisation
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).
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