Enterprise Value (TEV)
Quick Primer →
Equity Value Guide
5-Min Read →
What is Market Cap?
Stock Price × Shares Outstanding →
Discount Rate
Training Tutorial →
DCF Model Training Guide
5-Min Read →
Cost of Capital (WACC)
5-Min Read →
Comparable Company Analysis
Trading Comps Tutorial →
Precedent Transaction Analysis
Transaction Comps Tutorial →
What is CAPM?
5-Min Read →
Explore
All Valuation Content
-
Beta (β)
Beta (β)What is Beta in Finance? Beta (β) measures the sensitivity of a security or portfolio of securities to systematic risk (i.e. volatility) relative to the broader securities market. Levered and Unlevere...
-
Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model (CAPM)What is CAPM? The Capital Asset Pricing Model (CAPM) estimates the expected return on an investment based on the perceived systematic risk. The cost of equity—the required rate of return for equity ho...
-
Capital Structure
Capital StructureWhat is Capital Structure? The Capital Structure is the mixture of debt, preferred stock, and common equity used by a company to fund its operations and purchase assets. Often referred to as the “capi...
-
Cash Flow Drivers
Cash Flow DriversWhat are Cash Flow Drivers? Cash Flow Drivers determine the sustainability and future growth trajectory of a company, as they are byproducts of long-term net operating changes. Forecasting a company...
-
Common DCF Model Mistakes
Common DCF Model MistakesWhat are the Common DCF Mistakes? The DCF model relies significantly on forward-looking projections and discretionary assumptions, making it prone to bias and mistakes. In the following post, we’ve co...
-
Comparable Company Analysis
Comparable Company AnalysisWhat is Comparable Company Analysis? Comparable Company Analysis is a relative valuation method in which a company’s value is derived from comparisons to the current stock prices of similar comp...
-
Cost of Capital
Cost of CapitalWhat is Cost of Capital? The Cost of Capital is the minimum rate of return, or hurdle rate, required on a particular investment for the incremental risk undertaken to be rational from a risk-reward st...
-
Cost of Debt (kd)
Cost of Debt (kd)What is Cost of Debt? The Cost of Debt is the minimum rate of return that debt holders require to take on the burden of providing debt financing to a certain borrower. Compared to the cost of equity,...
-
Cost of Equity (ke)
Cost of Equity (ke)What is Cost of Equity? The Cost of Equity (ke) is the minimum threshold for the required rate of return for equity investors, which is a function of the risk profile of the company. If an investor de...
-
Cost of Preferred Stock (kp)
Cost of Preferred Stock (kp)What is Cost of Preferred Stock? The Cost of Preferred Stock represents the rate of return required by preferred shareholders and is calculated as the annual preferred dividend paid out (DPS) divided...
-
Country Risk Premium (CRP)
Country Risk Premium (CRP)What is Country Risk Premium? The Country Risk Premium (CRP) is the incremental return an investor expects to earn from investing in a foreign country, rather than in a more developed, stable domestic...
-
DCF Interview Questions
DCF Interview QuestionsTop DCF Interview Questions In the following DCF Interview Questions guide, we’ll cover the most fundamental technical interview questions related to the core intrinsic value and DCF modeling concepts...
-
DCF Model Training
DCF Model TrainingWhat is a DCF Model? The Discounted Cash Flow Model, or “DCF Model”, is a type of financial model that values a company by forecasting its cash flows and discounting them to arrive at a cu...
-
Discount Factor
Discount FactorWhat is Discount Factor? The Discount Factor is used to estimate the present value (PV) of receiving $1 in the future based on the expected date of receipt and discount rate assumption.
-
Discount Rate
Discount RateWhat is Discount Rate? The Discount Rate is the minimum rate of return expected to be earned on an investment given its risk profile. The present value (PV) of the future cash flows generated by a com...
-
Dividend Discount Model (DDM)
Dividend Discount Model (DDM)What is Dividend Discount Model? The Dividend Discount Model (DDM) states that the intrinsic value of a company is a function of the sum of all the expected dividends, with each payment discounted to...
-
EBIAT
EBIATWhat is EBIAT? EBIAT is a company’s after-tax operating income assuming there is no debt in its capital structure, i.e. the effects of interest are removed.
-
Economic Profit
Economic ProfitWhat is Economic Profit? The Economic Profit is the spread between return on invested capital (ROIC) and cost of capital (WACC), multiplied by invested capital.
-
Enterprise Value (TEV)
Enterprise Value (TEV)What is Enterprise Value? The Enterprise Value (TEV) is the value of a company’s operations to all stakeholders, such as common equity shareholders, preferred stockholders, and lenders of debt c...
-
Enterprise Value vs. Equity Value
Enterprise Value vs. Equity ValueWhat is Enterprise Value vs. Equity Value? Enterprise Value vs. Equity Value is an often-misunderstood topic, even by newly hired investment bankers. Understanding the distinction ensures that the fre...
-
Equity Risk Premium (ERP)
Equity Risk Premium (ERP)What is Equity Risk Premium? The Equity Risk Premium (ERP) is the excess returns over the risk-free rate that investors expect for taking on the incremental risks connected to the equities market. The...
-
Equity Value
Equity ValueWhat is Equity Value? The Equity Value is the total value of a company’s stock issuances attributable to only common shareholders, as of the latest market close. Often used interchangeably with the te...
-
Equity Value to Enterprise Value Bridge
Equity Value to Enterprise Value BridgeWhat is the Equity Value to Enterprise Value Bridge? The Equity Value to Enterprise Value Bridge illustrates the relationship between a company’s equity value and enterprise value (TEV). Specifically,...
-
EV/EBIT Multiple
EV/EBIT MultipleWhat is EV/EBIT? The EV/EBIT Multiple is a valuation ratio that compares a company’s enterprise value (EV) to its earnings before interest and taxes (EBIT). Considered one of the most frequently...
-
EV/EBITDA Multiple
EV/EBITDA MultipleWhat is EV/EBITDA? The EV/EBITDA Multiple compares the total value of a company’s operations (EV) relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA). In practice,...
-
EV/FCF Multiple
EV/FCF MultipleWhat is EV/FCF? The EV/FCF valuation multiple is a ratio comparing a company’s enterprise value (EV) to its free cash flow to firm (FCFF).
-
EV/Invested Capital
EV/Invested CapitalWhat is EV/Invested Capital? EV/Invested Capital is a valuation multiple that compares the enterprise value of a company in relation to its invested capital, i.e. the sum of fixed assets and net worki...
-
Financial Leverage
Financial LeverageWhat is Financial Leverage? Financial Leverage refers to the borrowing of capital by a corporation from lenders, such as banks, to fund its operations and long-term investments in fixed assets (PP...
-
Forward P/E Ratio
Forward P/E RatioWhat is the Forward P/E Ratio? The Forward P/E Ratio is a variation of the price-to-earnings ratio in which a company’s forecasted earnings per share (EPS) is used rather than its historical EPS.
-
Free Cash Flow Conversion (FCF)
Free Cash Flow Conversion (FCF)What is Free Cash Flow Conversion? Free Cash Flow Conversion is a liquidity ratio that measures a company’s ability to convert its operating profits into free cash flow (FCF) in a given period. By com...
-
Free Cash Flow to Equity (FCFE)
Free Cash Flow to Equity (FCFE)What is FCFE? FCFE, or “Free Cash Flow to Equity,” measures the amount of cash remaining for equity holders once operating expenses, re-investments, and financing-related outflows have bee...
-
Free Cash Flow to Firm (FCFF)
Free Cash Flow to Firm (FCFF)What is FCFF? FCFF—or Free Cash Flow to Firm—is the excess cash generated by a company’s core operations attributable to all capital providers, inclusive of equity shareholders, preferred stockh...
-
Free Cash Flow Yield (FCFY)
Free Cash Flow Yield (FCFY)What is Free Cash Flow Yield? The Free Cash Flow Yield (FCFY) measures the amount of cash generated from the core operations of a company relative to its valuation, expressed as a percentage.
-
Gordon Growth Model (GGM)
Gordon Growth Model (GGM)What is Gordon Growth Model? The Gordon Growth Model calculates a company’s intrinsic value under the assumption that its shares are worth the sum of all its future dividends discounted back to...
-
Idiosyncratic Risk
Idiosyncratic RiskWhat is Idiosyncratic Risk? Idiosyncratic Risk is uncorrelated to the risk of the broader market and can be mitigated via portfolio diversification. Often used interchangeably with the term “unsystema...
-
Illiquidity Discount
Illiquidity DiscountWhat is Illiquidity Discount? Illiquidity describes assets that cannot be readily sold in the open market — which usually warrants a discount to be attached to the valuation due to the absence of mark...
-
Industry Beta
Industry BetaWhat is the Industry Beta Approach? The Industry Beta is an alternative approach to estimating a company’s beta, in which a peer-group derived beta is applied to the target being valued.
-
Intrinsic Value
Intrinsic ValueWhat is Intrinsic Value? Intrinsic Value is the estimated worth of an asset following the objective analysis of its fundamentals and internal financial data, without reliance on external factors such...
-
Justified P/E Ratio
Justified P/E RatioWhat is the Justified P/E Ratio? The Justified P/E Ratio is a variation of the price-to-earnings ratio linked to the Gordon Growth Model (GGM) in an effort to better understand a company’s under...
-
Levered DCF Model
Levered DCF ModelWhat is a Levered DCF Model? The Levered DCF Model values a company by discounting the forecasted cash flows that belong only to equity holders, excluding all cash flows to non-equity claims such as d...
-
Levered Free Cash Flow (LFCF)
Levered Free Cash Flow (LFCF)What is Levered Free Cash Flow? Levered Free Cash Flow (LFCF) is the residual cash belonging to only equity holders after deducting operating costs, reinvestments (e.g. working capital and capital exp...
-
LTM vs. NTM Multiples
LTM vs. NTM MultiplesWhat is LTM vs. NTM Multiples? Last Twelve Months (LTM) and Next Twelve Months (NTM) are standard forms in which valuation multiples are presented in trading and transaction comps analyses. While LTM...
-
Market Capitalization
Market CapitalizationWhat is Market Cap? The Market Cap—or “Market Capitalization”—is the total value of a company’s equity from the perspective of its common shareholders. Often used interchangeably with the...
-
Market Multiples
Market Multiples[caption id="attachment_6258" align="alignright" width="150"] You gonna have that sandwich?[/caption] What is Multiples Analysis? Investment bankers talk a lot about valuation multiples. In fact, almo...
-
Market to Book Ratio
Market to Book RatioWhat is Market to Book Ratio? The Market to Book Ratio compares a company’s market capitalization, or “equity value,” to its book value of equity (BVE).
-
Mid-Year Convention
Mid-Year ConventionWhat is Mid-Year Convention? The Mid-Year Convention treats forecasted free cash flows (FCFs) as if they were generated at the midpoint of the period. Since cash inflows and outflows occur continuousl...
-
NOPAT
NOPATWhat is NOPAT? NOPAT, or Net Operating Profit After Tax, is a company’s theoretical after-tax operating income if it had no debt in its capital structure. By removing the impact of financing dif...
-
NOPAT Margin
NOPAT MarginWhat is NOPAT Margin? The NOPAT Margin is a profitability ratio that compares a company’s net operating profit after tax to revenue, expressed in percentage form.
-
NOPLAT
NOPLATWhat is NOPLAT? NOPLAT stands for “Net Operating Profit Less Adjusted Taxes” and represents a company’s operating income upon adjusting for taxes.
-
Normalized EBITDA
Normalized EBITDAWhat is Normalized EBITDA? Normalized EBITDA measures the operating cash flow generated by a company’s core business activities with discretionary adjustments to remove the effects of non-recurring it...
-
Optimal Capital Structure
Optimal Capital StructureWhat is the Optimal Capital Structure? The Optimal Capital Structure is the state at which a company’s cost of capital (WACC) is minimized, which maximizes the firm value. If a company’s cost of capit...
-
P/E Ratio
P/E RatioWhat is P/E Ratio? The P/E Ratio—or “Price-Earnings Ratio”—is a common valuation multiple that compares the current stock price of a company to its earnings per share (EPS). Simply put, th...
-
P/FCF Multiple
P/FCF MultipleWhat is P/FCF? The P/FCF multiple compares a company’s equity value (i.e. market capitalization) relative to its free cash flow to equity (FCFE), or levered free cash flow.
-
PEG Ratio
PEG RatioWhat is PEG Ratio? The PEG Ratio—shorthand for “Price/Earnings-to-Growth”—is a valuation metric that standardizes the P/E ratio against a company’s expected growth rate. Unlike the traditional price-t...
-
Portfolio Beta
Portfolio BetaWhat is Portfolio Beta? Portfolio Beta is a measure of the systematic risk of a portfolio of securities relative to a market benchmark (i.e. the S&P 500). For a portfolio of investments, the portf...
-
Precedent Transaction Analysis
Precedent Transaction AnalysisWhat is Precedent Transaction Analysis? Precedent Transaction Analysis estimates the implied value of a company by analyzing the recent acquisition prices paid in comparable transactions.
-
Price to Book (P/B Ratio)
Price to Book (P/B Ratio)What is Price to Book Ratio? The Price to Book (P/B Ratio) measures the market capitalization of a company relative to its book value of equity. Widely used among the value investing crowd, the P/B ra...
-
Price to Cash Flow (P/CF)
Price to Cash Flow (P/CF)What is Price to Cash Flow? The Price to Cash Flow Ratio (P/CF) evaluates the valuation of a company’s stock by comparing its share price to the amount of operating cash flow produced. Unlike th...
-
Price to Sales Ratio (P/S)
Price to Sales Ratio (P/S)What is Price to Sales? The Price to Sales Ratio (P/S) measures the market value of a company in relation to the total amount of annual sales it has recently generated.
-
Price to Tangible Book Value (P/TBV)
Price to Tangible Book Value (P/TBV)What is Price to Tangible Book Value? The Price to Tangible Book Value (P/TBV) ratio measures a company’s market capitalization relative to its book value of equity, net of intangible assets.
-
Pros and Cons of DCF Analysis
Pros and Cons of DCF AnalysisWhat are the Pros and Cons of the DCF Analysis? The DCF analysis estimates a company’s intrinsic value using explicit assumptions for the company’s future free cash flows (FCFs), discount...
-
Reinvestment Rate
Reinvestment RateWhat is Reinvestment Rate? The Reinvestment Rate measures the percentage of a company’s after-tax operating income (i.e. NOPAT) that is allocated to capital expenditures (Capex) and net working capita...
-
Relative Value
Relative ValueWhat is Relative Value? Relative Value determines the approximate worth of an asset by comparing it to assets with similar risk/return profiles and fundamental traits.
-
Residual Income (RI)
Residual Income (RI)What is Residual Income? Residual Income is the excess net operating income earned over the required rate of return on a company’s operating assets.
-
Residual Income Valuation
Residual Income ValuationWhat is Residual Income Valuation? Residual Income Valuation is a method used to estimate the value of a firm based on expected excess income, discounted using the cost of equity (ke).
-
Risk Free Rate (rf)
Risk Free Rate (rf)What is the Risk Free Rate? The Risk Free Rate (rf) is the theoretical rate of return received on zero-risk assets, which serves as the minimum return required on riskier investments. The risk-free ra...
-
Sum of the Parts (SOTP)
Sum of the Parts (SOTP)What is SOTP? Sum of the Parts Analysis (SOTP), or “break-up analysis”, estimates the value of each business segment within a company separately, which are then added together to arrive at...
-
Systematic Risk
Systematic RiskWhat is Systematic Risk? Systematic Risk is defined as the risk inherent to the entire market, rather than impacting only one specific company or industry.
-
Terminal Growth Rate
Terminal Growth RateWhat is Terminal Growth Rate? The Terminal Growth Rate is the implied rate at which a company’s free cash flow (FCF) is expected to grow perpetually, after the initial forecast period of a two-stage D...
-
Terminal Value
Terminal ValueWhat is Terminal Value? The Terminal Value is the estimated value of a company beyond the final year of the explicit forecast period in a DCF model. Usually, the terminal value contributes around thre...
-
Trade-Off Theory
Trade-Off TheoryWhat is the Trade-Off Theory? The Trade-Off Theory of capital structure states that the firm value of a company can be maximized by determining its optimal mix of debt and equity.
-
Trailing P/E Ratio
Trailing P/E RatioWhat is Trailing P/E Ratio? The Trailing P/E Ratio is calculated by dividing a company’s current share price by its most recent reported earnings per share (EPS), i.e. the latest fiscal year EPS or th...
-
Treasury Stock Method (TSM)
Treasury Stock Method (TSM)What is the Treasury Stock Method? The Treasury Stock Method (TSM) is used to compute the net new number of shares from potentially dilutive securities. The underlying intuition behind the treasury st...
-
Unlevered Free Cash Flow (UFCF)
Unlevered Free Cash Flow (UFCF)What is Unlevered Free Cash Flow? Unlevered Free Cash Flow is the cash generated by a company before accounting for interest and taxes, i.e. it represents cash available to all capital providers. Unle...
-
Valuation Multiples
Valuation MultiplesWhat are Valuation Multiples? Valuation Multiples are ratios that reflects the implied value of companies in relation to a specific operating metric. Usage of a valuation multiple – a standardized fin...
-
WACC
WACCWhat is WACC? The Weighted Average Cost of Capital (WACC) is one of the key inputs in discounted cash flow (DCF) analysis, and is frequently the topic of technical investment banking interviews. The W...
-
WACC for Private Company
WACC for Private CompanyWhat is WACC for a Private Company? The WACC for a Private Company is calculated by multiplying the cost of each source of funding – either equity or debt – by its respective weight (%) in the capital...
-
Walk Me Through a DCF
Walk Me Through a DCFWalk Me Through a DCF If you’re recruiting for investment banking or related front-office finance positions, “Walk Me Through a DCF” is almost guaranteed to be asked in an interview settin...