Working Capital, Capital Investments, and Capital Structure
Free Cash Flow to Equity (FCFE) Free Cash Flow to Equity (FCFE) is a metric of shareholder value, representing the actual cash left over after a company covers its operating expenses, taxes, and all necessary investments to sustain and grow…
Revenue Drivers, Operating Profitability, and Pricing Power
Analysts can predict a company’s future sales by evaluating its position against competitors through three key questions about the future: The Top-Down Approach A top-down approach starts with the macro-economy and industry trends to size a company’s future market opportunity…
Company Competitive Strategy and Industry Position
A company’s business model defines how it creates value. It includes its customers, products or services, key assets, and its network of suppliers and partners. This business model does not exist in a vacuum. It is directly shaped by the…
Limitations of Constant-Growth and Multistage Present Value Models
DCF models are only as accurate as their chosen metrics and user assumptions. Company-Specific Drawbacks & Metric Limitations Master CFA Level I present value model concepts with a Free Trial. Life-Cycle & Growth Challenges DCF models, particularly constant-growth models, work…
Equity Intrinsic Value Using Constant-Growth and Multistage Present Value Models
Company Life Cycle and Valuation The equity valuation process involves: The usefulness of present value models depends on a firm’s life-cycle stage. Startups are difficult to value with these models because they often have little revenue, net losses, and a…
Dividend Discount, FCFE, FCFF, and Residual Income Models
The value of a financial asset is determined by its future cash flows and claims, adjusted for timing and probability. Bonds have finite, contractually obligated cash flows. Shareholder distributions like dividends or share repurchases are indefinite, unknown, and entirely at…
Types of Equity Indexes
Equity Indexes: Composition and Weighting Indexes serve as benchmarks for performance evaluation, underlie indexed investment products, and provide a macro-level gauge of market sentiment. Most broad-based indexes are constructed using a float-adjusted market capitalization weighting methodology. This means that a…
Liquidity Measures for Publicly Listed Securities
Quantifying and Characterizing Equity Market Liquidity To objectively assess equity market liquidity, market participants rely on a structured hierarchy of quantitative metrics and qualitative market attributes. Market Float (The True Circulating Supply) The float measures the number of shares genuinely…
Exchange, Off-Exchange, and Over-The-Counter Equities Trading
Trading Venues: Where and How Equities Change Hands The execution of a trade depends heavily on the venue’s infrastructure. Each venue offers distinct advantages in cost, transparency, and certainty of execution. Exchange-Traded Markets Exchanges are highly regulated, centralized venues that…
Primary and Secondary Public Equity Markets and Their Functions
The Ecosystem of Public Equity Markets Public equity markets perform two fundamentally distinct but interdependent roles. The primary market is the channel through which corporations secure new ownership capital by issuing fresh securities to outside investors. Conversely, the secondary market…
