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Investing in Land - Agricultural REITs
Investing in land I have noticed an increased interest in agricultural land investments during the last period. And I can it understand completely. When stocks are so volatile and bonds may offer such low return
http://www.investingforbeginners.eu/investing_in_land_agricultural_reits-p0-i12
Investments
(Are you looking for investment definition?) Investments are instruments that allow us to receive a higher amount of money than was spent. If someone spends 10 euros or dollars and he knows that he will receive
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Sortino Ratio
Sortino ratio is a financial ratio that is used to measure the performance of investment portfolio and is very similar to a Sharpe ratio. The main difference between Sortino ratio and Sharpe ratio is that Sharpe
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Derivatives
Derivative Financial Instruments Derivatives are so called because they are constructed from other traditional securities, and operate the rights to them. Apart from the fact that there are some basic derivative instrum
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Investment in Mutual Funds
Investment Funds (Collective Investment) Investment in mutual funds is one of the most popular types of investment. A mutual fund is just a large and well diversified investment portfolio of many securities, in which ca
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Asset Management
Definition Asset management which also is called as investment management has many similarities to finance management but investment management is more specific and narrow area of finance. Invest
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Terminal Value
Terminal value is a value of the business (or other asset) used in discounted cash flow (DCF) method that is added after the discontinuing of the cash flow forecasting. DCF valuation is based on the sum
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Investment in Index-Linked Bonds
Index-linked bonds are also known as structured bonds. This product is more popular in immature investment markets, where investors are not sufficiently educated. Diversity of index-linked bonds can be very high,
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Investing in Funds
Investment Funds Strategy Indeed, investing in mutual funds is not complete investment strategy, but only a part of it, or more precisely, only the choice of investment instrument. For example, if the strategy d
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Investment Manager
Investment management or finance management are particularly a lot of attention and responsibility requiring areas. It does not matter whether you manage your money whether corporate funds, in any case, it is important t
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OTC Market
OTC (Over-The-Counter) market is decentralized market where financial assets are traded. Decentralized market means a contrast to the exchange trading. OTC market doesn’t have one place (no physical, no vir
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Stock Split
A stock split is a divide of existing company’s shares decreasing its face value. For every owned share an investor gets a several (or one) additional shares depending on split ratio, and the total out
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Dividends
Dividends are capital payments from companies to theirs shareholders. Normally dividends are paid by cash and usually but necessary once a year. Every company’s common share of the same class gets equal div
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Dividend Payout Ratio
Payout ratio is a percentage that shows a portion of company’s income distributed as dividends. Formula Dividend payout ratio = common shares dividends / net income *For the sam
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Stock Buyback
A stock buyback (share repurchase) is a company’s purchase of its own stock on the market. It is contrary way to pay out capital for shareholders to dividends. Stock buybacks are getting more and more
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Institutional Investor
An institutional investor is an investor that is a corporation/institution. Institutional investors have high impact to investment markets and sometimes decisions of most known institutional investment manag
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Investment Bank
An investment bank is a financial institution that has a license of bank and specializes exclusively on investment services. In the USA investment banking services was separated from other banking activity u
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Risk-free Interest Rate
A risk-free interest rate is rate of interests that would be paid by fixed income securities that contains no risk at all. For a very long time short-term US Treasury securities was used to d
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Real Risk-free Interest Rate
A real risk-free interest rate is very similar to (nominal) risk free rate. The only difference is that real risk free rate is under condition if no inflation expected. Real risk free rate is deducted from nomina
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Junk Bonds
Junk bonds are bonds that have a speculative-grade credit rating, which is BB or lower. Junk bonds are riskier but they have higher yields. The spread between junk bond yield and safe bond yield (c
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Operating Leverage
An operating leverage is a company’s EBIT (earnings before taxes and financial operations) sensitivity to changes of sales. As the sensitivity is measured to operating income (close to EBIT), the
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Investment Strategies
Investment (investing) strategy – often discussed by both amateur and professional investors, but in fact very rarely encountered. Amateurs usually imagine that they has an investment strategy only after th
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Net Present Value (NPV)
Net present value (NPV) is a value calculated by discounting all future net cash flows (net cash flow is calculated taking all the forecasted future income and subtracting from them forecasted expenses in every p
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Investment Performance Measurement
Many investors are happy about investment managers until the stock market is growing, but when the decline starts investment managers gets only the worst words about their job. However, this is wrong attitud
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Treynor Ratio
Treynor ratio is another popular ratio that is used to measure the performance of investment portfolio. This ratio compares the excess return (above risk free return) of a portfolio to beta of that portfolio. Whi
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Jensens Alpha
Jensen’s alpha is used to measure the performance of an investment portfolio. The higher ratio means better performance of portfolio manager. Basically, this Jensen’s ratio shows the above market port
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Sharpe Ratio
Sharpe ratio measures the above risk free performance of investment portfolio in relation to its risk. This ratio was developed by William F. Sharpe which introduced the ratio in 1966. Now Sharpe ratio is the mos
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Return on Investment
Return on investment (ROI) is a percentage that shows profitability of an investment or investment portfolio. Return on investment calculation: CALCULATION: Return on investment = net in
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Valuation Multiples
Valuation multiples are stock ratios that include in the calculation share price and show whether stock is cheap or expensive compared to similar stocks. Valuation multiples (or just multiples) ar
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P/E Ratio
P/E ratio is the most popular valuation multiple that is used for stock analysis. This ratio shows the price of the stock compared to its earnings. The multiple is so popular because of its simplicity and im
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PEG Ratio
Price-to-Earnings to Growth Ratio PEG ratio is quiet popular among retail investors, however professionals do not use it often because of this ratio subjectivity. PEG ratio shows how expensive is stock compared
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Cost of Equity
Cost of equity is the rate of return that is required by equity owners from their investment. Of course, requirements of the shareholders have to be real and meet market conditions as well. Basically cost of equi
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Stock Valuation
Stock valuation is very important part of investing in stocks, and this part is the most time consuming and knowledge requiring. Stock valuation is a necessary and main step at stock picking process. The only way
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Relative Valuation
Comparative analysis Relative valuation is stock valuation method that gained its popularity because of simplicity and practical importance. The key principle of relative valuation is about valuation multi
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DCF Valuation
Discounted Cash Flow Analysis DCF valuation might be applied to any asset that generates positive free cash flow or is expected to generate that cash flow in the future. DCF valuation might be directly applied t
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Replacement Cost Valuation
Replacement cost valuation method is not very popular at stock valuation. Most of the investors are picking stocks with help of relative valuation or DCF valuation. Only when those two methods aren’t possib
http://www.investingforbeginners.eu/replacement_cost_valuation
Discounted Cash Flow
Discounted cash flow (DCF) is forecasted net cash flow of the company or other asset that is recalculated (discounted) to its current value. Discounted cash flow is important for investment assessing and mostly i
http://www.investingforbeginners.eu/discounted_cash_flow
WACC
WACC (Weighted Average Capital Cost) shows cost of capital when capital is consisted of both equity and debt capital. So WACC simply calculates the weighted average between equity cost and debt cost.
http://www.investingforbeginners.eu/wacc
CAPM
CAPM (Capital Asset Pricing Model) is method widely used for equity cost calculation. Equity cost should show the return that investor should expect/seek from an investment that contains specific level of risk.&n
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Hedge Funds
Hedge funds are investment funds that use financial leverage and derivatives to achieve better investment results. The name of hedge fund came from hedging, which originally is a defensive investment strategy, bu
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free Float
free float is a proportion of company’s shares that are really traded in the market. Normally, free float is lower than the total outstanding number of shares, because most of the largest shareholders do no
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Market Making
Market making is a service provided by brokerage company to some listed company to increase liquidity in stock trading on stock exchange. Usually brokerage company gets paid for this service and has to maintain s
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Profit Margin
Profit margin normally refers to net profit margin, which is net profit divided by sales. But one should remember that profit might be of different kinds (net profit, pretax profit, EBIT, EBITDA and gross profit)
http://www.investingforbeginners.eu/profit_margin
ROE
ROE (Return on Equity) shows profitability of company’s book value. Company’s book value (equity) is equal to company’s assets less liabilities, and ROE is usually higher if company ha
http://www.investingforbeginners.eu/roe
ROA
ROA (Return on Assets) shows what profits are earned by company’s assets. Of course, assets alone usually do not earn the profit, because most of the times profit is the result of know-how and hard work of
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Margin Call
Buying on Margin Costs of Buying Stocks on Margin Margin Call The Pros and Cons Psychology: Is it worth? Margin call is a fabulous term which carries some mysticism. However, there is nothing
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M&A
M&A (mergers & acquisitions) is a field of corporate finance in which corporations are acquiring other companies or are merging in between. Theoretically it doesn’t sound very impressive, but in rea
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Hostile Takeover
A hostile takeover is an acquisition of a target company when its management doesn’t want the company to be overtaken by another corporation. The target of a hostile takeover may be only listed company whic
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Management Buyout
A management buyout (MBO) is an acquisition of a company when company’s management gets the control interest in the company. Management buyout can be placed on if existing shareholders agree to sell their s
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Employee Stock Options
Employee stock options are options that are given to employees as part of motivation package and gives an opportunity for employees to acquire shares of the company in the future at a lower price. In their meanin
http://www.investingforbeginners.eu/employee_stock_options
Floatation
Floatation means going public through an IPO. If companies go public they have to get listed their shares on some stock exchange. Each company’s may choose any stock exchange, but normally smaller companies
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Risk Averse
Risk averse is a characteristic of an investor who is avoiding risk. The more investor is avoiding the risk the more is he risk averse. Almost all the investors (as people are too) are more or less risk averse an
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Fund Manager
A fund manager is an employee of investment management company which is responsible for the management of the fund’s assets. Most of the times, more than one person is involved in fund’s management bu
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Liquidity
(1) Market liquidity is a characteristic of a security or other traded investment that shows how easy it is convertible in to cash at a market value. Usually when investor decides to sell some investment and
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Net Income
Net income (net profit) is a financial indicator of the company that shows the real profitability of the business in accordance to its capital structure. Net income is equal to all revenue and gains less all expe
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Operating Margin
Operating margin is a profitability percentage that shows what company’s profit margin is before it pays interests and taxes. Operating margin simply ignores capital structure (because ignores financial act
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Financial Planning
Financial planning is a type of financial analysis of which goal is to predict financial situation of the object in the future. There are two main trends where financial planning can be applied: in corporate fina
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Working Capital Management
Why Working Capital Is Important? Working capital is one of the main parts of company’s finances and every manager, even of the small company, manages working capital despite the fact he knows about that o
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Cost of Debt Formula
Cost of debt formula Theoretical cost of debt formula: Before tax cost of debt = Risk free rate + Credit risk premium After tax cost of debt = (Risk free rate + Credit risk premiu
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After Tax Cost of Debt
There are two types of the debt cost: ‘before tax cost of debt’ and after tax cost of debt. The only difference between those is that the first one is equal to the interest rate paid by company while
http://www.investingforbeginners.eu/after_tax_cost_of_debt
Cost of Debt Calculation
The cost of debt is easy to calculate if they are required data. Actually, there are few methods to get the cost of debt, but some of those are more accurate some less. If you want that your result would be more
http://www.investingforbeginners.eu/cost_of_debt_calculation
Price to free Cash Flow
Price to free cash flow (P/FCF) or EV/FCF ratio are ratios that compare company's price to its free cash flow. The main difference between those two ratios is that EV/FCF also includes the eff
http://www.investingforbeginners.eu/price_to_free_cash_flow
Price to Cash Flow Ratio
Price to cash flow ratio (P/CF) and EV/CF ratio are similar but there are some differences. The main difference is that EV/CF also includes the effect of company’s financial debt which says a different
http://www.investingforbeginners.eu/price_to_cash_flow_ratio
free Cash Flow Yield
free cash flow yield (FCF yield) show how much of cash that may be distributed to shareholders the business earns compared to its price on the stock exchange (including both: equity value and debt value or just e
http://www.investingforbeginners.eu/free_cash_flow_yield
Minority Interest
Minority interest (non-controlling interest) is a part of net income or of an equity that does not belong to the shareholders of the main group. Basically there are two types of the minority interest:
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free Cash Flow
free cash flow of the company shows how much of cash business has earned in the reality over the period. There are many ways to determine the free cash flow of the company, and most often this indicator is provid
http://www.investingforbeginners.eu/free_cash_flow
Capex
Capex (capital expenditure) is company’s investment in long-term assets that are needed to continue the business or for future’s growth. The perfect examples of capital expenditure can be an acquisiti
http://www.investingforbeginners.eu/capex
Operating Cash Flow
Operating cash flow or ‘cash flow from operations’ (CFFO) is one of the most important among financial indicators and is used to measure company’s results in cash terms. While net income or oper
http://www.investingforbeginners.eu/operating_cash_flow
Cost of Capital
Capital of every company consists of two parts: equity capital and debt capital (only if company has no financial debts it has only equity capital). Both these capital sources have their costs and this is cost of
http://www.investingforbeginners.eu/cost_of_capital
NOPAT
NOPAT (‘net operating profit after tax’ or ‘after tax operating profit’) is equal to operating profit less taxes. It is adjusted by tax rate because the part cost of debt which is part of
http://www.investingforbeginners.eu/nopat
CFROI
CFROI or cash flow return on investment is a rate of return that measures the performance of corporation based on its cash flow generation ability. CFROI is not very popular but is still used by some companies an
http://www.investingforbeginners.eu/cfroi
Financial Ratios
Financial ratios are ratios that are used in financial analysis or in other words that are using financial data of a company. Such financial data usually is found in financial statements (income statement, balanc
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Fundamental Analysis
Fundamental analysis is the type of financial analysis that relies on company’s fundamentals. Those fundamentals depend on the target of the analysis. For example, fundamental analysis of stock depends on i
http://www.investingforbeginners.eu/fundamental_analysis
Cash Ratio
Cash ratio is a financial ratio that measures company’s financial liquidity over short term. It compares company’s cash reserves to short-term liabilities. If ‘cash ratio’ is high, it may
http://www.investingforbeginners.eu/cash_ratio
Market Risk Premium
(Equity Risk Premium) Every investment carries some level of risk and some level of potential return. Those two measures are closely related in investment finance and are used in CAPM which calculates cost of eq
http://www.investingforbeginners.eu/market_risk_premium
