What is the Earnings per Share (EPS) Formula? EPS is a financial ratio, which divides net earnings available to common shareholders by the average outstanding shares over a certain period of time. The EPS formula indicates a company’s ability to produce net profits for common shareholders. This guide breaks down the Earnings per Share formula in…
What is the Effective Annual Interest Rate? The Effective Annual Interest Rate (EAR) is the interest rate that is adjusted for compounding over a given period. Simply put, the effective annual interest rate is the rate of interest that an investor can earn (or pay) in a year after taking into consideration compounding. EAR can…
What is Operating Profit Margin? Operating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations before subtracting taxes and interest charges. It is calculated by dividing the operating profit by total revenue and expressing it as a percentage. The margin is also known as…
What is Net Working Capital? Simply put, Net Working Capital (NWC) is the difference between a company’s current assets and current liabilities on its balance sheet. It is a measure of a company’s liquidity and its ability to meet short-term obligations, as well as fund operations of the business. The ideal position is to have more current assets than current…
What is Net Profit Margin? Net Profit Margin (also known as “Profit Margin” or “Net Profit Margin Ratio”) is a financial ratio used to calculate the percentage of profit a company produces from its total revenue. It measures the amount of net profit a company obtains per dollar of revenue gained. The net profit margin…
What is WACC? A firm’s Weighted Average Cost of Capital (WACC) represents its blended cost of capital across all sources, including common shares, preferred shares, and debt. The cost of each type of capital is weighted by its percentage of total capital and then are all added together. This guide will provide a detailed breakdown of…
What Is EBITDA? Definition and Purpose EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is a financial metric used to evaluate a company’s operating performance. It removes the effects of financing and certain accounting decisions, giving a clearer view of operational performance. In simple terms, EBITDA reflects a company’s ability to generate…
What is CAPM? The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. Below…
What is Return on Equity (ROE)? Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage (e.g., 12%). Alternatively, ROE can also be derived by dividing the firm’s dividend growth rate by its earnings retention rate (1 –…
What is SWORD Financing? Stock and Warrant Off-Balance R&D (SWORD) financing is a special type of financing developed particularly for biotechnology companies. The main goal of SWORD financing is to subsidize a company’s biotech R&D activities. Research and development activities are essential to the success of a biotechnology company. However, R&D activities come with a…
