September 15, 2020
September 15, 2020
Expectations and the Role of Intangible Investments
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DEFINITIONS OF TERMS
Free cash flow (FCF) is a measure of financial performance calculated as net operating profit after tax minus investment in growth. FCF represents the cash that a company is able generate after laying out the money required to maintain or expand its asset base.
The S&P 500® Index measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy.
Price-earnings (P/E) is the price of a stock divided by its earnings per share. Sometimes called the multiple, P/E gives investors an idea of how much they are paying for a company’s earning power. The higher the P/E, the more investors are paying, and therefore the more earnings growth they are expecting.
The cost of capital is the rate at which you discount future cash flows in order to determine the value today. The weighted average cost of capital blends the opportunity cost of the sources of capital, typically debt or equity, with the relative contribution of those sources.
Return on investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.
Net present value is a measure of the value of estimated future cash flows discounted back to the present.
The discount rate is the rate at which you discount future cash flows in order to determine the value today.
The price-to-book multiple or ratio (Price/Book) compares a stock’s market value to the book value per share of total assets less total liabilities. This number is used to judge whether a stock is undervalued or overvalued.
The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.
The residual, or terminal, value is the value of all future cash flows at the point of time in which growth is expected to become stable.
Return on invested capital represents the rate of return a company makes on the cash it invests in its business.
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