• Corporate Strategy , Economics , Finance , Higher Level Management ,
• 26 Sep

Economic Value Added (EVA) is a profit metric. It was created by the consulting firm Stern Value Management. The big difference between EVA and regular profit is that EVA takes into account the cost of capital. It shows the amount of economic value added with a positive value or destroyed with a negative value. This

• Accounting , Economics , Finance ,
• 09 Aug

Calculating Foreign Exchange gains and losses is important for companies that do business internationally. We won’t get into complicated Forex trading but look at how exchange rates changing over time can affect your accounts receivable and accounts payable. We’ll also define basis points and work them into our discussion. Why do we have gains or

• Economics , Finance , Higher Level Management ,
• 14 Jul

Payback Period is a “quick and dirty” method of calculating how long it will take to recoup an investment given the assumption or knowledge of future cash in-flows. You essentially have two pieces to this equation, the money you invested and the cash flows that come in each year. If it’s consistent cash flows coming

• Economics , Finance , Metrics and Ratios ,
• 07 Jul

The Treynor Ratio is a reward to volatility metric. It is named after the economist Jack Treynor. It’s a performance measure that determines the additional return generated for each unit of  systemic risk in a portfolio. Treynor Ratio     where Portfolio Return Risk-Free Rate Beta of the Portfolio     Portfolio Return This is

• Economics , Finance ,
• 02 Jul

The Sortino Ratio is a risk vs return metric. This is named after Frank A. Sortino. A higher Sortino Ratio equates to less risk while a smaller one means more risk. It attempts a similar goal as the Sharpe ratio but only looks at the downside risk. The idea is that investors should only concern

• Economics , Finance , Metrics and Ratios ,
• 15 Jun

The Sharpe ratio is a risk vs return metric. The economist William F. Sharpe built this formula in 1966. He would later receive a Nobel Prize for his work on CAPM. The higher the number the better here for this ratio. Remember to keep the periods consistent when making comparisons.  A typical period is monthly

• Economics , Finance , Metrics and Ratios ,
• 03 Jun

  The Zeta Model helps us determine if a public company will declare bankruptcy in the next 2 years.   It was first published in 1968 by NYU Finance Professor Edward L. Altman.  This model assigns a score based on various weighted metrics. These metrics combine balance sheet and income statement items to look at the

• Economics , Finance ,
• 15 Apr

Capital Asset Pricing Model is used to determine an appropriate expected rate of return of an asset based on the systemic risk of that asset. It says that given a certain amount of general risk, we should expect a certain amount of return on a security. Return on investment can also be called cost of