Your management is not working in your favor. Say you’re the CFO. First, congratulations. You made it! Investment Banking. Business school. Private Equity. All paid off. Call your parents, they will be proud. Next, what do you care about? Your new pay package. Those sweet bonuses are hard to take your eyes off. Millions of dollars – it’s a big
Would you lend more than you are paid back? Probably not. But investors do this often. If a bond returns $1,000 to their bond investors, why would investors purchase the bond for more than $1,000. Doesn’t that mean that the investor is guaranteed to lose money. Not exactly. So, why exactly do a company’s bonds trade above the face value?
Would you ever lend me money for free? And charge no interest. Probably not. Well, maybe, if you are my friend. But, it’s unlikely that you would lend money for nothing in return. Why? Well there is risk that stems from the uncertainty on whether you will get your money back. For that risk, you ask me to compensate you.
Part 1: Author’s Bias All valuations are biased. I must start with a simple yet profound confession. I love education. And, I love EdTech more. So, why does that matter? Well you see, when going into any analyses, it is important to consider that the analyzer, the person conducting the analysis, may have some preconceived biases. For me, I am
Why can negative earnings per share (EPS) be misleading? Recently, I was discussing anti-dilutive effects on a student’s financial model. This problem arises for companies that have negative EPS. EPS is defined as Net Income to Common/Shares Outstanding. Because companies cannot have a negative amount of shares outstanding, the only way to have negative EPS is by operating at a
Why do companies use weighted average count as opposed to the ending diluted share count? Remember that the income statement reflects a period of time. Over the period of time the number of shares outstanding can fluctuate for a variety of reasons related to share buybacks, share issuances, and dilution. In these cases, simply using the diluted share count at
A continued focus on efficient, sustainable business profitability. As earnings season progresses, I was looking at some of the top movers, including Bel Fuse, an electrical components manufacturer. Shares are trading up 23% post-earnings release, reflecting the increased profitability stemming from gross margin expansion. Bel Fuse is a multifaceted company specializing in three core product segments. In Power Solutions and
A quick note on Q3 M&A activity: In Q3 2023, the global M&A market experienced a significant decline, with only 8,775 deals announced worldwide. This represents a 28.3% decrease compared to the same period in the previous year. Notably, it marked the first time since the pandemic that the number of global M&A announcements fell below 10,000. During the same
Threw together a drawdown chart, look at recent drawdown levels on long-dated treasury bonds. What is a drawdown chart? Effectively, the chart shows the peak-to-trough decline in the value of an investment or trading account over a specific period. It is used in finance to analyze the performance and risk associated with investments. Through the graph, you can see how
While we like hard rules, there are often no hard rules in finance. Everything must be viewed on a case-by-case basis. Especially when it comes to working capital, as I have been discussing. This weekend, I was running quant screens to identify potential value names, more to come, and when I pre-maturely screened for names, an interesting thought came up.
