EBITDA vs Revenue: What’s the Difference?
Blatently speaking, when a company makes money (revenue), it doesn’t get to keep all of it. There are many different types of costs and expenses that have to be deducted from the firm’s revenue until the amount of cash that is left can finally be distributed and returned to the shareholders of the business at […]
How to Deal With Negative Cash Flows in a DCF
According to the very core principles of intrinsic valuation, the value of any cash flow-generating asset should be based on its remaining lifetime, the magnitude of the cash flows it generates, and the risk/uncertainty of receiving less than those expected cash flows. As a consequence, the primary approach of valuing a cash-flow generating asset would […]
NOPAT vs EBITDA: What’s the Difference?
What’s NOPAT? Net operating profit after taxes or commonly referred to as NOPAT measures the operating income of a firm that would be attributable to both its shareholders and debtholders after accounting for tax payments. The formula for NOPAT goes as follows: Operating income represents the operational profit of a firm because it accounts for […]
Can Companies Have a Negative Interest Coverage Ratio?
What’s the Interest Coverage Ratio? The interest coverage ratio measures a company’s capability to meet its interest payments based on its current pre-tax operating earnings. It is defined as follows: EBIT stands for earnings before interest and taxes and represents the profits that a firm has generated from its day-to-day operations. We use EBIT since […]
ROIC vs ROE: What’s the Difference?
The return on invested capital (ROIC) and return on equity (ROE) are widely used performance measures that assess how efficiently a business is utilizing its investments in order to grow. Both ROIC and ROE are purely based on accounting numbers, making them fairly useful in measuring the efficiency of a company’s existing assets. ROIC vs […]
EV to EBITDA vs Price to Earnings: What’s the Difference?
One of the common ways to gauge the value of any stock is to apply various pricing metrics to them with two popular ones being the price-to-earnings and the EV to EBITDA ratio. While both may seem fairly similar on the surface, there are still distinct characteristics that make them differ from each other. In […]
Negative Return on Assets: Causes and Meaning
What Is Return on Assets (ROA)? The return on assets is an accounting metric that measures the return of a company’s profits relative to its total assets. The higher the ROA of a company, the more efficiently it is utilizing its assets. The formula for Return on Assets is pretty straightforward: Net Income Net income […]
What Does a Negative Operating Cash Flow Mean?
What’s Operating Cash Flow? Operating cash flow (CFO) represents the amount of cash that a business has generated from its day-to-day operations within a measured time period. The operating cash flow figure of a company can be found within the firm’s cash flow statement under the line item that is often referred to as “cash […]
Enterprise Value vs Book Value: What’s the Difference?
What’s the value of a company? The answer to that question can differ dramatically, depending on the exact definition of “value” that investors use. In many cases, the stated value of a business varies based on the perspective from which a firm can be looked at. Because of that, nailing down the characteristics and differences […]
Negative Free Cash Flow – Causes and Meaning
What Is Free Cash Flow? Free cash flow is the amount of cash within a company that is left after accounting for all operating expenses, reinvestment needs, and non-cash adjustments. It is essentially the money that could theoretically be distributed to all shareholders of the business at the end of the day. Unlike net income, […]
