What is Unlevered Free Cash Flow? Unlevered Free Cash Flow (also known as Free Cash Flow to the Firm or FCFF for short) is a theoretical cash flow figure for a business. It is the cash flow available to all equity holders and debtholders after all operating expenses, capital expenditures, and investments in working capital…
What is APV (Adjusted Present Value)? APV (Adjusted Present Value) is a modified form of Net Present Value (NPV) that takes into account the present value of leverage effects separately. APV splits financing and non-financing cash flows and discounts them separately. It is a more flexible valuation tool to show benefits, such as tax shields,…
What is Corporate Bond Valuation? Corporate bond valuation is the process of determining a corporate bond’s fair value based on the present value of the bond’s coupon payments and the repayment of the principal. Corporate bond valuation also accounts for the probability of the bond defaulting and not paying back the principal in full. …
What is the Modified Dietz Return? In modern portfolio theory, the Modified Dietz Return or Modified Dietz Method (“MDM”) is a commonly used algebraic method used to calculate the rate of return of an investment portfolio that includes the cash flows of the portfolio. The method accounts for the timing of when the cash flows…
Forecasting Balance Sheet Items in a Financial Model This article aims to provide readers with an easy to follow, step-by-step guide to forecasting balance sheet items in a financial model in Excel, including property, plant, and equipment (PP&E), other non-current operating assets, and various components of working capital. To begin, we will forecast the balance…
What is a Variable Price Limit? Variable price limits allow futures contracts to move beyond their fixed price limits in a single day. Due to the high volatility of the commodities market, price limits are imposed on future contracts to ensure a regulated market. Trading stops when contracts hit their price limits. However, sometimes with…
What is Volatility Arbitrage? Volatility arbitrage refers to a type of statistical arbitrage strategy that is implemented in options trading. It generates profits from the difference between the implied volatility of options and the forecasted volatility of underlying assets. The values of options are impacted by the volatility of their underlying assets. Higher volatility of…
What is Accrued Interest? Accrued interest refers to interest generated on an outstanding debt during a period of time, but the payment has not yet been made or received by the borrower or lender. Accrual Interest in Accounting Under accrual accounting, accrued interest is the amount of interest from a financial obligation that has been…
What is an Accrued Expense? Accrued expense is a concept in accrual accounting that refers to expenses that are recognized when incurred but not yet paid. In some transactions, cash is not paid or earned yet when the revenues or expenses are incurred. For example, a company pays its February utility bill in March, or…
