Pairs Trading
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...
Price to Sales Ratio
What is the Price to Sales Ratio? The Price to Sales ratio, also known as the P/S ratio, is a formula used to measure the total value that investors place on the company in comparison to the total revenue generated by the business. It is calculated by dividing the share price by the sales per...
Free Cash Flow Yield
What is Free Cash Flow Yield? Free cash flow yield is important for any business, large or small, because it acts as a good metric for cash flow in comparison to the company’s size. Cash flow is always an important metric for a company, as it shows – primarily to investors – its operating performance....
Sum Of The Parts (SOTP) Valuation
What is Sum Of The Parts (SOTP) Valuation? Sum Of The Parts (SOTP) valuation is an approach to valuing a firm by separately assessing the value of each business segment or subsidiary and adding them up to get the total value of the firm. It can be used in conjunction with various valuation techniques such...
Relative Valuation Models
What are Relative Valuation Models? Relative valuation models are used to value companies by comparing them to other businesses based on certain metrics such as EV/Revenue, EV/EBITDA, and P/E ratios. The logic is that if similar companies are worth 10x earnings, then the company that’s being valued should also be worth 10x its earnings. This...
