Bojan Radojicic on LinkedIn: Underrated Finance Terms: 𝗪𝗲𝗶𝗴𝗵𝘁𝗲𝗱 𝗔𝘃𝗲𝗿𝗮𝗴𝗲 𝗖𝗼𝘀𝘁 𝗼𝗳… | 33 comments (2024)

Underrated Finance Terms: 𝗪𝗲𝗶𝗴𝗵𝘁𝗲𝗱 𝗔𝘃𝗲𝗿𝗮𝗴𝗲 𝗖𝗼𝘀𝘁 𝗼𝗳 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 (WACC), Cost of Equity (Ke), Cost of Debt (Kd), Net Present Value (NPV), Internal Rate of Return (IRR), Hurdle Rate, Free Cash Flow to Firm (FCFF), Free Cash Flow to Equity (FCFE), Return on Equity (ROE), Return on Assets (ROA), Economic Value Added (EVA), Return on Invested Capital (ROIC), DuPont Analysis, Gordon Growth Model.Bojan RadojicicThank you for sharing these underrated finance terms! Understanding these terms is essential for comprehensive financial analysis even for non finance person. Thank for your valuable contribution.

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Some very important introductory Finance concepts neatly explained by Bojan Radojicic.

Underrated Finance Terms:𝗪𝗲𝗶𝗴𝗵𝘁𝗲𝗱 𝗔𝘃𝗲𝗿𝗮𝗴𝗲 𝗖𝗼𝘀𝘁 𝗼𝗳 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 (𝗪𝗔𝗖𝗖)Avg. return expected by a company from all sources of financing.𝗖𝗼𝘀𝘁 𝗼𝗳 𝗘𝗾𝘂𝗶𝘁𝘆 (𝗞𝗲)Return on company's equity investments.𝗖𝗼𝘀𝘁 𝗼𝗳 𝗱𝗲𝗯𝘁 (𝗞𝗱)Cost of financing through debt.𝗡𝗲𝘁 𝗣𝗿𝗲𝘀𝗲𝗻𝘁 𝗩𝗮𝗹𝘂𝗲 (𝗡𝗣𝗩)Discounted sum of project cash flows.𝗜𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗥𝗮𝘁𝗲 𝗼𝗳 𝗥𝗲𝘁𝘂𝗿𝗻 (𝗜𝗥𝗥)Discount rate making NPV zero.𝗛𝘂𝗿𝗱𝗹𝗲 𝗥𝗮𝘁𝗲Minimum return required on a project.𝗙𝗿𝗲𝗲 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝘁𝗼 𝗙𝗶𝗿𝗺 (𝗙𝗖𝗙𝗙)Cash after operations and asset maintenance.𝗙𝗿𝗲𝗲 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝘁𝗼 𝗘𝗾𝘂𝗶𝘁𝘆 (𝗙𝗖𝗙𝗘)Discretionary cash for equity holders.𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗘𝗾𝘂𝗶𝘁𝘆 (𝗥𝗢𝗘)Net income divided by shareholders' equity.𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗔𝘀𝘀𝗲𝘁𝘀 (𝗥𝗢𝗔)Profitability relative to total assets.𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗩𝗮𝗹𝘂𝗲 𝗔𝗱𝗱𝗲𝗱 (𝗘𝗩𝗔)Residual wealth after deducting cost of capital.𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗜𝗻𝘃𝗲𝘀𝘁𝗲𝗱 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 (𝗥𝗢𝗜𝗖)Net operating profit after taxes divided by invested capital.𝗗𝘂𝗣𝗼𝗻𝘁 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀ROE breakdown into operating efficiency, asset use efficiency, financial gearing.𝗚𝗼𝗿𝗱𝗼𝗻 𝗚𝗿𝗼𝘄𝘁𝗵 𝗠𝗼𝗱𝗲𝗹Intrinsic value of a stock based on future dividends.

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Day 35:Financial management is an integral part of any business, enterprise, or company. Finance consists of all the activities that are concerned with business activities and earning profit. It covers capital, investment, funds, money, and amounts. Financial management is concerned with the efficient utilization of finances, specifically capital funds; overall, it is about effective fund management. The scope of financial management is very vast, as it extends into economics, accounting, mathematics, production management, marketing, human resources, and more. The main objectives of financial management are profit maximization and wealth maximization: while profit is a parameter to understand business efficiency, wealth maximization is superior to profit maximization because the main aim of the business is to improve the value or wealth of the business. The time value of money is very important as the value of money varies with time; we can invest the present money. Time preference for money arises due to inflation (the value of money in terms of purchasing goods declines over time), future uncertainties (money received today is certain, but the future holds many uncertainties), investment opportunities (getting returns on present money), etc. If cash flows occur at different periods of time, then we cannot directly compare the cash flows due to the time value of money. To compare cash flows occurring at different times, we can use compounding (finding the future value of an investable amount at the current rate of return and then comparing it with the return on investment) or discounting (calculating the total present value of investment returns at the end of a specified number of years at the required rate of return and then comparing it with the invested amount); these two are called valuation techniques.#finance #financialmanagement #engineering #examprep

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Capital allocation is the most important task of management.But what's the difference between ROIC, ROE and ROCE?1️⃣ Definition• ROIC: Measures a company's capital allocation taking into account all capital• ROE: calculates the efficiency at which the company allocates shareholder capital• ROCE: Measures a company's capital allocation solely taking into account the actie capital in circulation of the company2️⃣ Formula• ROIC: NOPAT/Invested Capital• ROE: Net Income/Equity• ROCE: EBIT/Capital Employed3️⃣ Difference• ROIC: Takes into account all capital within the company• ROE: Only takes the Shareholders Equity into account• ROCE: Looks at the active capital in circulation4️⃣ Advantages• ROIC: Best metric to look at a company's capital allocation• ROE: Shows you how much $ per year a company generates per $100 shareholders invested in the company• ROCE: Great metric to compare the capital allocation across different geographies and sectors5️⃣ Disadvantages• ROIC: It can be misleading when the company has a lot of cash and/or goodwill • ROE: It can improve by using more leverage (more risk) as debt increases and equity decreases• ROCE: looks at the results before taxes__💡 That's it for today. Which capital allocation metric do you prefer?📚 Sign up here if you want to receive my free Financial Analysis course and plenty of other free investment resources: https://lnkd.in/ewnHQ_Sw

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Even in labor intensive industries, C level execs should be versed in these concepts and metrics.

How to plan an effective capital strategy in 2024 ? 📈Capital management is one of the most important aspects of corporate finance. It consists of optimizing the use of financial resources of a company to achieve its strategic objectives. According to a study by McKinsey, companies that manage their capital well have a 15% competitive advantage over those that do not.💡One of the key aspects of capital management is planning an effective strategy. A good strategy should align with the company’s vision, mission, and values, as well as the expectations of the stakeholders. 🎯To plan an effective capital strategy, you need to consider the following factors:👉 The cost and availability of different sources of funding, such as debt, equity, or retained earnings. 💰👉 The risk and return trade-off of different financing options, such as fixed or variable interest rates, short or long-term maturities, or convertible or non-convertible securities. 🔄 👉 The impact of different financing decisions on the company’s financial ratios, such as leverage, liquidity, profitability, or solvency. 📈📉 👉 The tax implications of different financing choices, such as the deductibility of interest expenses, the taxation of dividends, or the capital gains tax. 👉 The market conditions and expectations, such as the interest rate environment, the investor sentiment, or the industry trends. 📊Planning an effective capital strategy is not a one-time exercise, but a continuous process that requires regular monitoring and adjustment. You need to evaluate the performance of your strategy, compare it with your competitors and peers, and update it as needed to reflect the changes in your business environment and goals.If you want to know more about how to plan an effective capital strategy, follow us : IRETI CAPITAL MANAGEMENT#ireticapital #capitalmanagement #capitalstrategy #corporatefinance #strategicplanning

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Mastering these concepts provides a solid foundation for success in the field of finance📝1 Time Value of Money (TVM)👇🏻▪️Understand the concept that money today has a different value than the same amount in the future.2 Risk and Return👇🏻▪️Learn the relationship between the level of risk and the potential for returns in investments.3 Diversification👇🏻▪️Spread investments across different assets to reduce risk.4 Capital Budgeting👇🏻▪️Evaluate and make investment decisions for long-term projects.5 Financial Statements Analysis👇🏻▪️Interpret and analyze company financial statements to assess performance.6 Cost of Capital👇🏻▪️Determine the cost of financing for a business, incorporating debt and equity.7 Market Efficiency👇🏻▪️Understand the efficiency of financial markets in reflecting and incorporating information.8 Liquidity and Solvency👇🏻▪️Assess a company's ability to meet short-term and long-term obligations.9 Valuation Methods👇🏻▪️Learn various approaches to determining the intrinsic value of an investment.10 Financial Ratios👇🏻▪️Use ratios to assess a company's financial health and performance.11 Portfolio Management👇🏻▪️Develop and manage investment portfolios based on risk tolerance and financial goals.12 Derivatives and Hedging👇🏻▪️Understand how derivatives can be used to manage risk and speculate on future price movements.13 Financial Modeling👇🏻▪️Build models to project financial outcomes and support decision-making.14 Cost of Goods Sold (COGS)👇🏻▪️Calculate the direct costs of producing goods or services.15 Working Capital Management👇🏻▪️Optimize the balance between a company's current assets and liabilities for efficient operations.#finance #financeandaccounting #financecareers #linkedinfamily #linkedinforcreators #linkedin #linkedincontent #skillsforsuccess #financeprofessional .

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100% Development Finance...Is it really available?Well... I wouldn't talk about it so much if it wasn't!But - it's suited for the right person and the right project.Watch this video to find out if you'd be suitable, and get in touch to discuss further!#developmentfinance #propertydeveloper #propertyinvestment

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The Tightrope of Leverage in Corporate FinanceIn the intricate world of corporate finance, leverage is a tool that, when wielded with precision, can propel companies towards remarkable growth. Yet, it’s a tool that must be handled with the utmost care, as its misuse can lead to significant financial distress.Leverage, or the use of borrowed capital to fund business activities, can be an efficient way to amplify returns. The allure lies in its ability to enhance profitability without diluting equity. However, the flip side reveals increased financial risks, including higher interest obligations and potential default risks.Key to managing leverage is maintaining a balance. Companies need to keep an eye on their debt-to-equity ratios, ensuring they stay within industry norms. This balancing act is not static; it requires constant adjustment in response to market dynamics and company performance.Regular cash flow monitoring is another pillar in effectively managing leverage. It’s the lifeline ensuring that debt obligations are met without strain. In addition, diversifying capital sources mitigates the risk of over-reliance on a single funding stream.Perhaps the most crucial aspect is transparency in communication with stakeholders. Keeping investors and creditors in the loop about your leverage strategy and its inherent risks fosters trust and can be a buffer in times of financial stress.In summary, leverage in corporate finance is akin to walking a tightrope. It requires a keen sense of balance, constant vigilance, and an unwavering commitment to strategic financial management. As finance professionals, our role is to navigate these complexities, ensuring that leverage remains a tool for growth, not a trap leading to financial downfall.#CorporateFinance #LeverageManagement #FinancialStrategy #RiskManagement #BusinessGrowth

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