A lease is a contract where a Lessor (owner) permits a Lesse (user) to utilize an asset for a particular period. Financing and operating leases are essentially a form of financing and need to be considered as such when valuing …
The cost of capital is the weighted average of the cost of equity and the cost of debt. It’s the rate both equity and debt investors demand as a return or the hurdle rate if you’re on the other side of …
The cost of debt is the rate at which a company can borrow long-term today. It will reflect the firm’s default risk and the level of interest rates in the market. It is the sum of the risk-free rate and …
The cost of equity is the return demanded for an individual equity. It’s the return needed for investors to compensate for equity risk, and it’s the cost of equity funding for the company. The cost of equity is relatively easy …
We can add the risk-free rate and the equity risk premium to determine how much the market, or an average risk stock, will return. But what if our stock is more or less risky than the market? For that, we …
The Equity Risk Premium is the premium investors charge for investing in the average risk equity over and above a risk-free investment. The ERP is a dynamic number that varies over time due to changes in growth, inflation, and risk. What …
The risk-free rate is a foundational element of investing. It’s the theoretical rate of return you can get investing in something that is guaranteed and has no risk. It’s a reference point in investing as it makes sense to understand …
The value of a business is equal to the amount of cash you can take out of it for the rest of its life, discounted to the present. Learning how to value a company is just like riding a bike. …
Before you can value a company, you have to understand the numbers. This guide is an attempt to be the resource I wish I had when first starting to read financial statements. This mini-course is not designed to be a …
There’s a lot that goes into valuing a company. I’ve valued fast-growing companies in my previous articles. Astute readers may have noticed I discounted the company’s cash flows, but I didn’t explain the method behind the madness. With Micron, I’m …