Business Analysis for Investors | Financials and Valuation

Understanding Business Structures (Beginner Guide for Investors)

Business structures determine how a company is organized, taxed, and managed. For investors, understanding these structures is important because they influence risk, control, and financial outcomes. While business structures may seem like a legal or technical topic, they play a direct role in how businesses operate and how investors evaluate opportunities. What Is a Business […]

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Understanding the Discount Rate, Net Present Value (NPV), and Internal Rate of Return (IRR)

Business Evaluation

The discount rate, net present value (NPV), and internal rate of return (IRR) are foundational concepts in finance and investing. While they can seem complex at first, they are all built on a simple idea: The value of an investment depends on the present value of its future cash flows. Understanding how these concepts work

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Understanding the Time Value of Money (TVM)

Business Evaluation

The time value of money is one of the most important concepts in finance and investing. At its core, it reflects a simple idea: A dollar today is worth more than a dollar in the future. This is because money available today can be invested to earn a return, making it more valuable than the

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What is the Best Financial Metric?

Business Evaluation

If I had to choose a single metric to track the health of a business, that metric would be return on invested capital (ROIC). This metric helps answer what I believe is the single most important question in business: can the business earn a fair return on the financial capital that is placed in it?

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Charlie Munger and the Multi-Disciplinary Approach to Business

Business Evaluation

In a previous post, I provided a brief sketch of the life and career of legendary investor Charlie Munger. In this post, I want to provide some thoughts on what I believe is Munger’s greatest contribution: his advocacy of multi-disciplinary self-learning. Charlie Munger, who passed away on November 28, 2023, at the age of ninety-nine,

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Credit Ratios Introduction

Business Evaluation

This post is the last in a series covering financial ratios. In previous posts, we discussed ratios which measure profitability and working capital efficiency. In this post, we cover credit ratios. Credit ratios help investors, lenders, and managers determine a firm’s ability to satisfy debt obligations. Naturally, lenders are concerned about a firm’s ability to

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Activity Ratios Introduction

Business Evaluation

We refer to the ratios covered in this post as activity ratios. These ratios measure the efficiency with which the company is managing its operating working capital. This post is the fourth in a series about financial ratios. We previously explored return on invested capital, return on common equity, and other profitability ratios. To reiterate

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Profitability Ratios Introduction

Business Evaluation

We devoted previous posts to two important profitability ratios: return on invested capital (ROIC) and return on common equity (ROCE). These two metrics are arguably the most important metrics for determining the economics of a business and how well management is utilizing the company’s resources. However, there are several other ratios which can help managers

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Understanding Return on Common Equity

Business Evaluation

Previously we introduced a profitability ratio known as return on invested capital (ROIC). This ratio measures the amount of operating profit per dollar of total capital employed in the firm. But equity investors are often interested in the earnings generated on shareholder capital only. For this, we use a measure called return on common equity

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The Hurdle Rate – Understanding the Cost of Capital

Business Evaluation

In a previous post, we discussed a metric called return on invested capital (ROIC) and its variant, return on incremental invested capital (ROIIC). ROIC measures the after-tax operating earnings generated per dollar of average total capital, while ROIIC measures the incremental operating earnings generated per dollar of additional capital employed in the business. These measures

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Business-Focused

Fundamentals-First

Long-Term Value

Understanding Business Structures (Beginner Guide for Investors)

Understanding the Discount Rate, Net Present Value (NPV), and Internal Rate of Return (IRR)

Understanding the Time Value of Money (TVM)

What is the Best Financial Metric?

Charlie Munger and the Multi-Disciplinary Approach to Business

Credit Ratios Introduction

Activity Ratios Introduction

Profitability Ratios Introduction

Understanding Return on Common Equity

The Hurdle Rate – Understanding the Cost of Capital

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Business-Focused

Fundamentals-First

Long-Term Value

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