Altman Z-Score Formula – Screening For Bankruptcy Risk

As value investors, one of our most important rules is to avoid incurring large losses. There are two easy ways to subject yourself to possible large losses; buy stocks for more than they’re worth, and buy stocks of companies that go bankrupt. The Altman Z-Score is a formula of 5 basic financial ratios to help determine the financial health of a company. In particular, it is a probabilistic model to screen for bankruptcy risk of a company.

...
Read More.

Types of Cash Flow and Cash Flow Calculations Guide

Are you ever confused by the different types of cash flow for investment analysis? There are too many cash flow calculations for most of us to have in memory. I know I get them confused and I’m a seasoned investor.

I believe you will find this a useful guide to the different types of cash flow and cash flow calculations, along with practical step by step comparisons and uses for each metric.

...
Read More.

Working Capital and Working Capital Calculations

Working capital is an important measure of a company’s operating liquidity. The working capital ratio (a.k.a current ratio) is an indicator of the ability of the company to meet its short term obligations.

Working capital calculations such as Net Current Asset Value (NCAV) and Net Net Working Capital (NNWC) provide valuable metrics with which to measure against price in order to identify bargain stocks.

...
Read More.

Income Statement Format, Components, and Purpose

The purpose of the income statement is to provide the financial earnings performance of the entity over a specific period of time. It is also referred to as a profit and loss statement or earnings statement.
The components of the income statement format allows for dissecting the revenues, expenses, operating income, and profits of an entity.

...
Read More.

Explain Balance Sheet: Define Assets, Liabilities, and Net Worth

The balance sheet is a summary of assets, liabilities, and net worth (book value) at a specific point in time. The balance sheet is the foundation of the entity.

Whether an investor is looking for dividends, value, quality, or companies with sustainable competitive advantages, the foundation of each strategy is finding companies with a sound balance sheet. This is because the financial position of the entity affects everything it does and is able to achieve.

...
Read More.

What is Operating Cash Flow?

Operating cash flow (OCF) is cash generated from normal operations of a business. As part of the Cash Flow Statement the cash flows of the operating activities, investing activities, and financing activities are segregated so the analyst can get a clear picture of the cash flows of all the company’s activities.

...
Read More.