Finance
Notes on financial concepts, investment strategies, and economic principles that I've found valuable.
Core Concepts
- Compound Interest- The eighth wonder of the world that can make or break your financial future
Investment Principles
- Time Horizon: The longer your investment horizon, the more risk you can afford to take.
- Diversification: Don't put all your eggs in one basket; spread investments across asset classes.
- Dollar-Cost Averaging: Invest regularly regardless of market conditions to reduce timing risk.
Valuation Methods
- Discounted Cash Flow (DCF): Estimating the value of an investment based on its expected future cash flows.
- Comparable Company Analysis: Valuing a company based on metrics of similar public companies.
- Precedent Transactions: Valuing a company based on prices paid in similar acquisitions.
- Leveraged Buyout (LBO): Determining the maximum price that could be paid in a leveraged buyout while achieving target returns.
Financial Statements
- Income Statement: Revenue - Expenses = Profit (over a period of time)
- Balance Sheet: Assets = Liabilities + Equity (at a specific point in time)
- Cash Flow Statement: Tracks the inflows and outflows of cash (operating, investing, financing activities)
- Statement of Changes in Equity: Reconciles the movement in equity over a period
Key Financial Metrics
- P/E Ratio: Price per share / Earnings per share
- EV/EBITDA: Enterprise Value / Earnings Before Interest, Taxes, Depreciation, and Amortization
- ROE: Net Income / Shareholders' Equity
- ROIC: Net Operating Profit After Tax / Invested Capital
- Debt-to-Equity: Total Debt / Total Equity