In the previous post we have discussed the importance of cash. Cash is king not only for the fiscal health of a business but also when it comes to any investment analysis. Hence, all financial analyses evaluating future returns need to be based on cash flows. Sometimes, however, the financial data is only available as [...]
The phrase “cash is king” is being used on many occasions in the finance world. Although I usually don’t like generalizations, I must say that this phrase is true in many circumstances. So, why is cash king?
Cash is needed to pay bills, compensate employees, and make purchases. Hence, a business needs enough cash as an [...]
The purpose of a for-profit business of any size is to make profit. However, when people say that the company is making money or that an investment has a good return, they often mean different things. And sometimes they don’t even have profit in mind. So, let’s look how a company transforms sales into profit [...]
Net present value (NPV) is the most versatile investment metric. It’s based on forecasted cash flows and the opportunity cost of capital. You should accept any investment projects with NPV greater than zero. NPV is an absolute measure, it recognizes the time value of money, and is less prone to interpretation mistakes than its alternatives. [...]
This is the second basic principle of finance. Future cash flows are not certain. However, some are more certain than others. You can be more certain of future values of government securities, for example, than of the future values of the stock market.
Different investments have also different levels of uncertainty or risk. The concept of [...]