What is a Capital Investment Model? Most companies make long-term investments that require a large amount of capital invested in the initial years, mostly in fixed assets such as property, machinery, or equipment. Due to the significant amount of cash outflows required, companies perform a capital investment analysis to evaluate the profitability of an investment…
What is Top-Down Forecasting? Top-down forecasting is a method of estimating a company’s future performance by starting with high-level market data and working “down” to revenue. This approach starts with the big picture and then narrows in on a specific company. This guide will provide examples of how it works and explain why it’s commonly…
What is Bottom-Up Forecasting? Bottom-up forecasting is a method of estimating a company’s future performance by starting with low-level company data and working “up” to revenue. This approach starts with detailed customer or product information and then broadens up to revenue. This guide will provide examples of how it works and explain why it’s commonly…
What is Break-Even Analysis? Break-even analysis in economics, business, and cost accounting refers to the point at which total costs and total revenue are equal. A break-even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs (fixed and variable costs). What is the Break-Even Analysis…
What is the DCF Terminal Value Formula? Terminal value is the estimated value of a business beyond the explicit forecast period. It is a critical part of the financial model, as it typically makes up a large percentage of the total value of a business. There are two approaches to the DCF terminal value formula:…
What is Financial Modeling? Financial modeling is one of the most highly valued, but thinly understood, skills in financial analysis. The objective of financial modeling is to combine accounting, finance, and business metrics to create a forecast of a company’s future results. A financial model is simply a spreadsheet, usually built in Microsoft Excel, that…
What is Dividend Coverage Ratio (DCR)? The Dividend Coverage Ratio, also known as dividend cover, is a financial metric that measures the number of times that a company can pay dividends to its shareholders. The dividend coverage ratio is the ratio of the company’s net income divided by the dividend paid to shareholders. Dividend Coverage…
What is Dividend Payout Ratio (DPR)? The Dividend Payout Ratio (DPR) is the amount of dividends paid to shareholders in relation to the total amount of net income the company generates. In other words, the dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends. Dividend…
What is the Acid-Test Ratio? The Acid-Test Ratio, also known as the quick ratio, is a liquidity ratio that measures how sufficient a company’s short-term assets are to cover its current liabilities. In other words, the acid-test ratio is a measure of how well a company can satisfy its short-term (current) financial obligations. This guide will break…
What is the Fixed-Charge Coverage Ratio (FCCR)? The Fixed Charge Coverage Ratio (FCCR) compares the company’s ability to generate sufficient cash flow to meet its fixed charge obligations, such as the required principal and interest payments on debt. It may include leases and other fixed charges. It is an important financial ratio, and when it…
