Fundamental Analysis & Valuation
8 terms
Capital Allocation
Fundamental Analysis & Valuation
qualitative
Management's decisions about where to deploy the cash a business generates: reinvestment, acquisitions, debt repayment, dividends or buybacks.
Test: incremental capital deployed earns a return above the cost of capital, judged over several years
Capital Asset Pricing Model
Fundamental Analysis & Valuation
%
A model that estimates the return required on an asset as the risk-free rate plus a premium proportional to its market risk.
Expected Return = Risk-Free Rate + Beta x (Expected Market Return - Risk-Free Rate)
Cash Conversion Cycle
Fundamental Analysis & Valuation
days
The number of days between paying for inputs and collecting cash from customers.
Cash Conversion Cycle = Inventory Days + Debtor Days - Creditor Days
Comparable Company Analysis
Fundamental Analysis & Valuation
qualitative
The selection and adjustment of a peer group whose multiples are used to value a target company.
Test: peers share the business model, growth profile, margin structure, capital intensity and regulatory environment of the target
Compound Annual Growth Rate
Fundamental Analysis & Valuation
%
The constant annual rate at which a value would have had to grow to move from its starting figure to its ending figure.
CAGR = (Ending Value / Beginning Value) raised to (1 / Number of Years) - 1
Consensus Estimate
Fundamental Analysis & Valuation
₹
The average of analysts' forecasts for a company's future earnings, revenue or other metric.
Consensus Estimate = Mean or Median of Contributing Analysts' Individual Forecasts
Cost of Equity
Fundamental Analysis & Valuation
%
The return shareholders require for bearing the risk of owning a company's shares.
Cost of Equity = Risk-Free Rate + Beta x Equity Risk Premium
Current Ratio
Fundamental Analysis & Valuation
ratio (x, times)
Current assets divided by current liabilities, measuring whether short-term obligations are covered by short-term assets.
Current Ratio = Current Assets / Current Liabilities