The Dividend Discount Model (DDM) is a classical and widely used financial valuation method that estimates the intrinsic value of a stock based on the present value of all its expected future dividend payments. The underlying principle is that a stock’s worth today equals the sum of the dividends the company will pay in the…
1. Free Cash Flow to Firm (FCFF) Model 2. Free Cash Flow to Equity (FCFE) Model 3. Dividend Discount Model (DDM) 4. Adjusted Present Value (APV) Model Model Variations Based on Growth Summary Table Model Cash Flow Type Discount Rate Ideal For Free Cash Flow to Firm Firm-wide (FCFF) WACC Business as a whole Free…
Introduction Discounted Cash Flow (DCF) models are foundational tools in corporate finance and investment analysis. They provide a systematic approach for estimating the value of an investment, business, or project based on its expected future cash flows—adjusted for the time value of money. If you want to make savvy investment decisions or sharpen your valuation…
The Reserve Bank of India (RBI) has recently released draft guidelines on foreign exchange guarantees, setting out clear conditions for Indian citizens and institutions involved in such transactions. These rules are designed to ensure compliance with the Foreign Exchange Management Act (FEMA) and bring greater transparency to cross-border dealings. Key Highlights of the Draft Rules…
Introduction In the world of corporate valuations, one of the most practical and widely used methods is the Direct Comparison Approach. This method estimates the value of a company by comparing it with similar businesses that have been recently valued, sold, or listed in the market. Because it closely mirrors real market activity, it is…
In corporate finance and banking, understanding how to value a company is at the heart of smart decision-making. Whether it’s for investment, lending, mergers, or acquisitions, professionals rely on different valuation methods. One such method, widely respected for its practicality, is the Stock and Debt Approach. This method looks at both a company’s equity (stock)…
What is Relevant Cost? A relevant cost is a cost that differs between alternatives in a decision and will affect the future cash flows of a business. It is a cost that is pertinent to a specific business decision because it will be incurred or avoided depending on the choice made. Irrelevant costs, such as…
Introduction While financial metrics like profit, cash flow, and ROI remain central to business decision-making, ethical and non-financial considerations are now recognized as essential to building sustainable, trustworthy, and successful organizations. These additional factors safeguard a company’s reputation, long-term viability, and stakeholder trust—making them critical in today’s highly transparent and accountability-driven business environment. 1. Ethical…
Introduction Activity-Based Costing (ABC) is a refined costing approach that allocates overheads and indirect costs to products, services, or processes based on the activities they consume. In decision-making, ABC gives managers clear insights into true cost drivers, enabling better pricing, product mix selection, and strategic decisions. How ABC Works ABC assigns costs through:• Identifying key…
Introduction Cost-Volume-Profit (CVP) analysis is a powerful financial tool that connects the dots between costs, sales volume, and profits. It helps businesses answer key questions: How many units must be sold to break even? What happens to profit if costs or prices change? CVP analysis is crucial for managers making pricing, production, and resource allocation…
