What is Standard Deviation? From a statistics standpoint, the standard deviation of a dataset is a measure of the magnitude of deviations between the values of the observations contained in the dataset. From a financial standpoint, the standard deviation can help investors quantify how risky an investment is and determine their minimum required return on the…
Basic Statistics Concepts for Finance A solid understanding of statistics is crucially important in helping us better understand finance. Moreover, statistics concepts can help investors monitor the performance of their investment portfolios, make better investment decisions, and understand market trends. Arithmetic Mean The mean return on investment of a portfolio is an arithmetic average of…
What is Multiple Expansion? Multiple expansion is a form of arbitrage that employs the purchase of a security at a lower valuation multiple and selling a security at a higher valuation multiple. Generally, companies with lower valuation multiples are smaller and with higher investment risk compared to companies with higher valuation multiples. In addition, the…
Financial Projection Template Our financial projection template will help you forecast future revenues and expenses by building up from payroll schedules, operating expenses schedules, and sales forecast to the three financial statements. Below is a screenshot of the financial projection template: Download the Free Financial Projection Template Components of a financial projection template This financial…
Ethical vs. Legal Standards in Finance: What’s the Difference? Ethical vs. legal standards: what’s the difference? Making decisions that are both ethical and respectful of laws is something that investment professionals around the world are constantly mindful of. Such decisions stem from knowledge of the legal system, having the interests of all parties at heart…
What is the Q Ratio? The Q Ratio, or Tobin’s Q Ratio, is a ratio between a physical asset’s market value and its replacement value. The ratio was developed by James Tobin, a Nobel laureate in economics. Tobin suggested a hypothesis that the combined market value of all companies on the stock market should be…
What is Free Cash Flow to Equity (FCFE)? Free cash flow to equity (FCFE) is the amount of cash a business generates that is available to be potentially distributed to shareholders. It is calculated as Cash from Operations less Capital Expenditures plus net debt issued. This guide will provide a detailed explanation of why it’s…
Debt Service Coverage Ratio Template Debt Service Coverage Ratio (DSCR) measures the ability of a company to use its operating income to repay all its debt obligations, including repayment of principal and interest on both short-term and long-term debt. DSCR is often used when a company has any borrowings on its balance sheet such as…
The Four Main Types of Budgets and Budgeting Methods There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide. Source: CFI’s Budgeting & Forecasting…
What is Bad Debt? First, let’s determine what the term bad debt means. Sometimes, at the end of the fiscal period, when a company goes to prepare its financial statements, it needs to determine what portion of its receivables is collectible. The portion that a company believes is uncollectible is what is called “bad debt…
