In this article, I will demonstrate how to use the Beneish M-Score, a mathematical model developed by Professor Messod Beneish to detect potential earnings manipulation and fraud in financial statements. The M-Score employs a set of financial variables to identify red flags and inconsistencies that may suggest a company is manipulating its reported earnings. By […]
In this article, I will show you how to identify financially strong companies using the Piotroski F-Score. This nine-point scoring system, developed by accounting professor Joseph D. Piotroski in 2000, evaluates a firm's financial health and provides a quantitative framework for distinguishing between high-quality and low-quality value stocks. In essence, Piotroski's approach identifies high-quality stocks […]
In this article, I will explain the pros and cons of dividend discount models (DDMs). The DDM is a fundamental valuation method that calculates the intrinsic value of a company based on the dividends it is expected to pay out to shareholders, discounted back to their present value. This approach is particularly favored by investors […]
In this article, I will explain the pros and cons of the comparable company analysis (aka comps) valuation model. The comps model is a relative valuation method that determines the value of a company by comparing it to similar companies in the same industry, using multiples derived from market prices. This approach is widely utilized […]
In this article, I will explain the pros and cons of the discounted cash flow (DCF) valuation model. The DCF model is a valuation method that estimates the value of an investment based on its expected future cash flows, discounted back to their present value using an appropriate discount rate. This method is a popular […]
In this article, I will explain the difference between enterprise value and equity value. Equity value shows how much a company's shares are worth on the market. Enterprise value goes a step further by adding in the company's debt and subtracting its cash. The main difference is that equity value looks at what's available to […]
In this article, I will show you how to forecast free cash flow to the firm (FCFF), also known as unlevered free cash flow (UFCF). FCFF is the cash a company generates for all its capital providers, before considering interest payments. Typically, investors forecast FCFF to assess the attractiveness of an investment and to value […]
In this article, I will show you how to normalize free cash flow to the firm (FCFF), also known as unlevered free cash flow (UFCF). FCFF is the cash available to all capital providers in a company, including common stockholders, preferred stockholders, and debt lenders. Normalizing FCFF is necessary to smooth out irregular items and […]
In this article, I will show you how to calculate and interpret free cash flow to equity (FCFE), also known as levered free cash flow (LFCF). Understanding FCFE is essential for investors as it provides insight into a company's financial health, revealing the cash available to equity shareholders after fulfilling all operating expenses, non-cash expenses […]