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How are Working Capital and ROCE related? Explained in this post! Follow me (Peeyush) for more such finance explainers.. We can define ROCE as ROCE = EBIT / (Equity + Debt) Remember, on the Balance Sheet Long Term Assets + Current Assets = Equity + Long Term Liabilities + Current Liabilities Assuming a simple scenario, where only Long Term Liability is Debt, we can replace the equation as Long Term Assets + Current Assets (CA) = Equity + Debt + Current Liabilities (CL) We can rewrite this above equation as Long Term Assets + CA - CL = Equity + Debt Not replacing this in the ROCE equation ROCE = EBIT / (Long Term Assets + CA - CL) But Working Capital is derived from CA - CL So ROCE can be increased by reducing capital tied up as working capital. And if working capital needs increase, it will negatively impact ROCE of the firms. Firms with low margins can still have better ROCE by improving working capital efficiency. Do share this post with your network if you found this helpful. ------ I aim to teach practical #finance concepts through my writing and courses. Do check out my earlier posts. #valuation #investmentbanking

Many investors are now looking at free cash flow divided by EBITDA. When that ratio is low, it may indicate that the company is trying to make its EBITDA look strong through accounting gimmickry even though its cash flow is relatively weak. Some people call this ratio the cash conversion metric. Another formula that’s sometimes used is operating cash flow divided by EBIT (rather than by EBITDA). Either way, the metric shows how well the company is converting profit to cash.

Hey LinkedIn fam! Let's talk about EBITDA vs Free Cash Flow. A company's operating performance is measured by EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), whereas free cash flow measures the cash generated by operations after capital expenditures are taken into account. Even though EBITDA can give a quick overview of a business's profitability, it ignores crucial elements like working capital and capital expenses. However, by taking these things into account, Free Cash Flow offers a more accurate view of a company's financial situation. When assessing a company's performance and financial health, analysts and investors need to know the distinctions between EBITDA and free cash flow. When making investment decisions, it is crucial to take into account both metrics in addition to other financial indicators, as each has advantages and disadvantages of its own. What are your thoughts on EBITDA and Free Cash Flow? Let's discuss in the comments! #EBITDA #FreeCashFlow #FinancialAnalysis #InvestingInsights

Since March 2020, many businesses took advantage of accelerated depreciation incentives to purchase equipment. If you have used these incentives, you may potentially unlock profit on the sale of non-current assets when disposing of this equipment, given the balance sheet value have/s been written down to nil. These incentives included: Instant Asset Write-Off, Temporary Full Expensing and Backing Business Investment which all played a pivotal role in supporting businesses since 2020. Early engagement with your accountant to understand any tax implications is essential. MKP would welcome the opportunity to provide market insights ensuring a well-rounded approach from both a tax and debt perspective.

Since March 2020, many businesses took advantage of accelerated depreciation incentives to purchase equipment. If you have used these incentives, you may potentially unlock profit on the sale of non-current assets when disposing of this equipment, given the balance sheet value have/s been written down to nil. These incentives included: Instant Asset Write-Off, Temporary Full Expensing and Backing Business Investment which all played a pivotal role in supporting businesses since 2020. Early engagement with your accountant to understand any tax implications is essential. MKP would welcome the opportunity to provide market insights ensuring a well-rounded approach from both a tax and debt perspective.

Understanding Return on Capital Employed (ROCE): Key to Financial Performance Return on Capital Employed (ROCE) is a critical financial metric that assesses a company's efficiency in generating profits from its capital investments. It's calculated by dividing Earnings Before Interest and Tax (EBIT) by the Capital Employed (CE), which includes both equity and debt. Why is ROCE important? 1️⃣ Performance Measurement: ROCE helps investors and managers evaluate how well a company is utilizing its capital to generate earnings. 2️⃣ Comparison Tool: It provides a standardized way to compare the financial performance of companies across industries and over time. 3️⃣ Profitability Indicator: A high ROCE indicates efficient use of capital and strong profitability relative to the investments made. Understanding ROCE can guide strategic decisions: Improving Efficiency: Companies can focus on optimizing capital allocation to enhance ROCE. Identifying Issues: A declining ROCE may signal inefficiencies or declining profitability. Strategic Planning: ROCE insights can inform long-term investment strategies and operational improvements. #FINANCE #ROCE #INVESTMENT #FINANCIALANALYSIS #BUSINESSSTRATEGY

Financial Modeling and valuation for eFinance Investment Group Company and This Model Including: -Analysis Financial Statements. -Financial Ratio. -Valuation Ratio. -Revenue & COGS Breakdown. -Supporting Schedule. -Altman Z-Score. -Beta Calculation. -Weighted Average Cost of Capital Calculation. -Economic Value Added - EVA Analysis. -Free Cash Flow Firm & Free Cash Flow Equity. -Sensitivity Analysis. -Comparable Analysis. There is a mistake in the company's financial statement. The cost of goods sold (COGS) for 2022 should be 1.357 billion, not 1.278 billion. #FinancialModeling #FinancialAnalysis #FinancialRatios #FinancialHealth #ValuationSchool #Valuation #DCF #Finance

Why EBITDA matters in Financial analysis? EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a key metric for assessing a company's operating performance. It focuses on core profitability by excluding non-operational factors like interest, taxes etc It helps in : - Performance Comparison: EBITDA allows for a clearer comparison of profitability across companies, regardless of debt levels or tax structures. - Operational Efficiency: It highlights how well a company generates profits from its operations, free from external influences. - Valuation Tool: EBITDA is widely used in financial ratios like EV/EBITDA to assess a company’s valuation However, EBITDA doesn’t account for capital expenditures or debt payments, so it’s just one piece of the puzzle in understanding a company’s overall financial health. #Finance #EBITDA #Valuation #Investing #financialanalysis

The cash flow that’s generated from the business is discounted back to a specific point in time (hence the name Discounted Cash Flow model), typically to the current date. The reason cash flow is discounted comes down to several reasons, mostly summarized as opportunity cost and risk, in accordance with the theory of the time value of money. The time value of money assumes that money in the present is worth more than money in the future because money in the present can be invested and thereby earn more money. A firm’s Weighted Average Cost of Capital (WACC) represents the required rate of return expected by its investors. Therefore, it can also be thought of as a firm’s opportunity cost, meaning if they can’t find a higher rate of return elsewhere, they should buy back their own shares. To the extent a company achieves rates of return above their cost of capital (their hurdle rate), they are “creating value.” If they are earning a rate of return below their cost of capital, then they are “destroying value.” Investors’ required rate of return (as discussed above) generally relates to the risk of the investment (using the Capital Asset Pricing Model). Therefore, the riskier an investment, the higher the required rate of return and the higher the cost of capital. The farther out the cash flows are, the riskier they are, and, thus, they need to be discounted further . #Finance #valuation #financejobs #udemy

💡 Understanding EBITDA: The Key to Evaluating Operational Performance EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a powerful financial metric that provides insight into a company's profitability from core operations. Here's a quick breakdown of why it matters: 👉 Operational Efficiency: EBITDA focuses on a company's ability to generate profits, removing the effects of financing and non-cash expenses. 👉 Industry Comparisons: It helps compare companies across industries by eliminating variables like tax rates and depreciation methods. 👉 Valuation & Investment Insights: Investors often use EBITDA to assess a company’s valuation and make informed decisions. ⚖️ But Keep in Mind... While EBITDA offers valuable insights, it doesn't account for capital structure or real cash flow, so it’s best used alongside other metrics. Want to dive deeper? Check out below to see the components of EBITDA explained clearly! 📊 #Finance #EBITDA #BusinessInsights #Valuation #Investing #FinancialAnalysis