This comprehensive case study brings together key principles of financial analysis to solve a real-world dilemmaassessing the profitability of a real estate purchase. Specifically, we will calculate the IRR (Internal rate of return) for an apartment. This analysis is complex, as it integrates cash flow, taxation, debt, and inflation. Therefore, I will guide you through… Read More »
Internal Rate of Return (IRR – internal rate of return) is a widely used concept in finance. It is mainly used to evaluate the profitability of an investment that generates cash flows over time (which often have to be estimated). Every company or investor must decide whether it makes sense to commit an initial investment… Read More »
In the last article about financial formulas, I focused on Internal Rate of Return – IRR, which helps us evaluate investment projects. For example, we previously calculated the return on an apartment investment, where we planned to rent it out for a while and then sell it. I mentioned that IRR (in %) is often… Read More »
In this article, we’ll take a look at SWIFT and how exactly this system makes international payments easier. To successfully carry out a cross-border payment, you logically need two things: To get the payment instruction from the payer’s bank to the recipient’s bank (handled by SWIFT) To settle the transaction between the payer’s and recipient’s… Read More »
DuPont decomposition of profitability is a technique that allows us to decode the factors influencing the final value of a profitability ratio, such as ROE or ROA. The pioneer of the DuPont analysis is Donaldson Brown , the CFO of the American chemical company DuPont. In 1912, he realized that profitability is influenced by multiple… Read More »
The key goal of any business is not only to generate profits but also to manage financial flows efficiently. One of the important tools of financial analysis that helps assess a company’s financial stability and liquidity is the metric known as the current ratio. This ratio shows to what extent a company can cover its… Read More »
Quick Ratio, also known as Acid-test ratio, belongs to the family of liquidity ratios and, similar to Cash Ratio, measures a company’s ability to cover short-term liabilities. While the Cash Ratio assesses the company’s ability to settle obligations almost immediately (within days), the Quick Ratio measures the ability to pay liabilities relatively quickly without disrupting… Read More »
The Cash Ratio (CR) is an important liquidity ratio in financial analysis. This ratio measures a company’s ability to immediately cover its short-term liabilities. Very low values may indicate potential repayment risks, while very high values could point to inefficient cash management. The cash ratio can also serve as a financial covenant and is an important… Read More »
ROA – Return on Assets is a financial ratio expressed as a percentage. It reflects the profitability of all assets. In other words, it shows what percentage of profit is generated from the total assets managed by the company. Sometimes, it is also referred to as the return on total capital (since equity + debt… Read More »
ROE – Return on Equity is an important financial ratio. ROE measures how much profit is generated from the equity invested in a company. It is expressed as a percentage. ROE – Return on Equity: Definition and Formula The primary goal of any company is (or should be) profit maximization. An owner who invests money… Read More »