What is XVA (X-Value Adjustment)? XVA, or X-Value Adjustment, is a collective term that covers the different types of valuation adjustments relating to derivative contracts. The adjustments are made to account for the account funding, credit risk, and capital costs. When initiating new trades in the derivatives market, traders incorporate XVA into the price of…
What is Modified Book Value? Modified book value is one of the several valuation methods used by analysts and investors to assign a value to a company. The modified book value method works by adjusting the net worth of a company’s assets and liabilities to obtain their fair market value. For example, the market value…
What is the EV/Capital Employed Ratio? EV/Capital Employed Ratio is a measure of enterprise value normalized by the level of capital used by the business. For example, a large business with a large capital stock is bound to realize a large enterprise value solely due to its large capital holdings. What Does the Numerator (ROCE)…
What is Residual Income Valuation? Residual income valuation (also known as residual income model or residual income method) is an equity valuation method that is based on the idea that the value of a company’s stock equals the present value of future residual incomes discounted at the appropriate cost of equity. Further Analysis…
What is Earnings Yield? The earnings yield is a financial ratio that describes the relationship of a company’s LTM earnings per share to the company’s stock price per share. The earnings yield is the inverse ratio to the price-to-earnings (P/E) ratio. The quick formula for Earnings Yield is E/P, earnings divided by price. The yield…
What is a Conglomerate Discount? Conglomerate discount isn’t what its name may suggest. It’s a drawback for a conglomerate with multiple sections/divisions/companies, all of which aren’t generally successfully run as a cohesive unit. As a result, the market may discount the value of a multi-division corporation, giving less value to its earnings. Calculating the Conglomerate…
What are Momentum Indicators? Momentum indicators are tools utilized by traders to get a better understanding of the speed or rate at which the price of a security changes. Momentum indicators are best used with other indicators and tools because they don’t work to identify the direction of movement, only the timeframe in which the…
What is Pairs Trading? Pairs trading is a strategic trading option that is used to generate profits regardless of market direction. Traders utilizing the pairs strategy determine two securities that: Share similar characteristics and have a high positive correlation Are trading at a price that is contradictory to their historical trading prices One of the…
