What is the Debt Service Coverage Ratio? The Debt Service Coverage Ratio (sometimes called DSC or DSCR) is a credit metric used to understand how easily a company’s operating cash flow can cover its annual interest and principal obligations. Because the Debt Service Coverage Ratio also includes principal obligations in the denominator, it’s considered a…
FCFF vs FCFE vs Dividends All three types of cash flow – FCFF vs FCFE vs Dividends – can be used to determine the intrinsic value of equity, and ultimately, a firm’s intrinsic stock price. The primary difference in the valuation methods lies in how the cash flows are discounted. All three methods account for…
What is Capital? Capital is anything that increases one’s ability to generate value. It can be used to increase value across a wide range of categories, such as financial, social, physical, intellectual, etc. In business and economics, the two most common types of capital are financial and human. This guide will explore all the above…
What is Time Series Data Analysis? Time series data analysis is the analysis of datasets that change over a period of time. Time series datasets record observations of the same variable over various points of time. Financial analysts use time series data such as stock price movements, or a company’s sales over time, to analyze…
What is Income? Income refers to the money that is earned by an individual for providing a service or as an exchange for providing a product. The income earned by an individual is used to fund their day-to-day expenditures, as well as fund investments. Some of the most common types of income include salaries, revenue…
Debt vs Equity Financing: Which is Best? Debt vs Equity Financing – which is best for your business and why? The simple answer is that it depends. The equity versus debt decision relies on a large number of factors, such as the current economic climate, the business’ existing capital structure, and the business life cycle…
What is the Fama-French Three-Factor Model? The Fama-French Three-Factor Model is an extension of the Capital Asset Pricing Model (CAPM). The Fama-French model aims to describe stock returns through three factors: (1) market risk, (2) the outperformance of small-cap companies relative to large-cap companies, and (3) the outperformance of high book-to-market value companies versus low…
What is Gearing? Gearing is the amount of debt, in proportion to equity capital, that a company uses to fund its operations. A company that possesses a high gearing ratio shows a high debt to equity ratio, which potentially increases the risk of financial failure of the business. Gearing serves as a measure of the extent to…
What is the Hockey Stick Effect? The hockey stick effect is characterized by a sharp rise or fall of data points after a long flat period. It is illustrated using the graphical shape of a line chart that resembles a hockey stick. The hockey stick chart formation illustrates that urgent action may be required to…
