Fundamental
What is Goodwill and How Does a Company Create it?
Goodwill is an accounting term used to reflect the portion of the value of a company over and above its book value. Goodwill is most often evaluated in the case of a company acquisition as it reflects an intangible asset; the premium the buyer is willing to pay for the company beyond its tangible [...]
The Importance of Retained Earnings
Retained earnings, also known as “accumulated earnings” or “retained capital” refer to the portion of net income the company retains as opposed to distributing those funds to shareholders in the form of dividends. A company’s retained earnings are typically reinvested into its core business or used to pay down debt. A company’s retained [...]
Understanding Earnings per Share and
its Impact on Stock Price
A company’s Earnings per Share (EPS) represents the portion of the company’s earnings (after deducting taxes and preferred share dividends) that is distributed to each share of the company’s common stock. The EPS measure gives investors a way to compare stocks in an “apples to apples” way.
The Importance of Earnings per Share in [...]
The Warning Signs and Impact of a Dividend Cut
For income-oriented investors, dividend-paying stocks can represent a central part of a stock portfolio. Dividend stocks can offer investors great financial flexibility by providing the opportunity to either reinvest the payments or use it as a source of income. For fundamental investors, dividends add creditability to the investment in a company since dividends [...]
How to Find Wide Economic Moat Companies
An Economic Moat is a long-term competitive advantage that creates a market barrier to other firms and can enable a company to maintain very high profit levels. The term “economic moat” was coined by the great investor Warren Buffet who believes that investing in a company with a substantial economic moat is safer than [...]
Evaluating Company Management in Fundamental Analysis
When evaluating a stock, many investors will look at the strength and effectiveness of company management as part of the due diligence process. The corporate scandals of recent years have reminded all of us of the importance of having a high-quality management team in place. The role of the management team, as far [...]
Analyzing the Cash Flow Statement
The Cash Flow Statement (CFS) or “statement of cash flows” is a financial statement that records the cash and cash equivalents entering and leaving a company. The “cash inflow” is the money coming into the business, while the “cash outflow” is the money going out. Cash is the lifeblood of any business since, [...]
Measuring a Company’s Cash Conversion Cycle
The cash conversion cycle (CCC) is a measure of the time it takes a company to convert its resources to cash. The CCC is the total time it takes for the company to convert its resources into inventories, then into finished products for sale, then the conversion of those products into accounts receivable and then [...]
The Importance of Operating Cash Flow
Operating Cash Flow or “cash flow from operating activities” is the cash a company generates through the operations of its business. The operating cash flow is generally defined as revenues minus the costs associated with the company’s operations. Because operating cash flow adjusts for liabilities, depreciation, and receivables, it is viewed as a [...]
A Process to Conduct Fundamental Analysis
Fundamental analysis is a stock valuation process under which the investor examines company financials and operations. Under this process, the investor will pay particular attention to the company’s sales and, earnings (as well as growth potential), the company’s assets and liabilities, its management team, product line and competitors. Unlike technical investors, the fundamental investor [...]
