Financial Theory Articles

  1. An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  2. Valuing A Company Using The Residual Income Method

    Learn the underlying basics behind the residual income model and how it can be used to place an absolute value on a firm. ...
  3. Accounting For Intercorporate Investments

    Understanding these investments is key to determining the value and future prospects of any business.
  4. How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined? ...
  5. Do Small Investors Move The Market?

    As trading technology improves access, individual investors may have more of a say in the direction of the market.
  6. Cleaning Up Dirty Surplus Items On The Income Statement

    Dirty surplus items can skew net income. Knowing how to account for them will give you a cleaner picture.
  7. How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  8. It's Not Illegal If The Government Does It

    The government allows itself the leeway to do many things that would be illegal for a private citizen or corporation.
  9. Hamburger Economics: The Big Mac Index

    In theory, PPP stands up much better than it does in reality. Find out how to evaluate currencies according to the price ...
  10. The S&P Downgrade: What Does It Mean?

    Standard & Poor's downgraded the outlook on U.S. Treasuries from "stable" to "negative." We'll look at what this means ...
  11. 7 Facts You Didn't Know About The Greenback

    There's more to that $10 bill in your pocket than you think - read on for some interesting facts about U.S. currency.
  12. Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  13. Information Overload: How It Hurts Investors

    There's a fine line between staying informed and being overloaded with financial information.
  14. The 5 Biggest Investors In Social Media

    Find out who is backing this new wave of powerful companies.
  15. Deadly Flaws In Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect measures.
  16. How To Pick The Best Telecom Stocks

    This ever-changing industry can leave investors scratching their heads. Find out which metrics matter.
  17. Do Mergers Save Or Cost Consumers Money?

    A merger or acquisition can actually be beneficial to the customer - find out how, in this article.
  18. A Primer On The Railroad Sector

    The railroad industry might seem antiquated, but it remains an important service that reaches all corners of the country. ...
  19. Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  20. An Introduction To Small Cap Stocks

    When it comes to a company's size, bigger isn't always better for investors. Find out more here.
  21. Valuing A Stock With Supernormal Dividend Growth Rates

    If these calculations are off, it could drastically change the value of the shares.
  22. Using Porter's 5 Forces To Analyze Stocks

    These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance ...
  23. Adding Alpha Without Adding Risk

    Learn how to generate higher returns in your portfolio while keeping the same risk profile.
  24. The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  25. Using Open Interest To Find Bull/Bear Signals

    Volume should inform your use of this indicator in confirming trends and reversals.
  26. How To Pick A Stock

    So you've finally decided to start investing. But what should you put in your portfolio? Find out here.
  27. David Sokol: Buffett's Former Right-Hand Man

    Sokol contrasts sharply with Buffett's management style, but he can help Berkshire thrive once Buffett decides to move on. ...
  28. How The Loch Ness Monster Affects The Economy

    Do sightings of Bigfoot, Nessie and UFOs lead to massive market fluctuations?
  29. Point And Figure Charting Basics

    Learn how to construct and read these price charts designed to highlight entry and exit points for longer-term positions. ...
  30. 5 People Blamed For The Financial Crisis

    The housing bubble, and the resulting financial crisis, has many different parents to blame.
  31. 6 Terms To Warm The Coldest Wall Street Heart

    There is plenty of love on Wall Street, even if it's all just words.
  32. Why You Shouldn't Buy Investments You Know

    Though it's got merit, buying what you know could hold you back from achieving greater investment yields.
  33. Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  34. Using Public SEC Filings To Analyze Companies

    Reports from the Securities and Exchange Commission provide investors with an edge in determining the investment value of ...
  35. Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  36. Reverse Engineering Return On Equity

    Return on equity is a widely used ratio, but return on net operating assets (RNOA) takes things one step farther.
  37. Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  38. Efficient Market Hypothesis: Is The Stock Market Efficient?

    Deciding whether it's possible to attain above-average returns requires an understanding of EMH.
  39. The Advantages Of SPAN Margin

    Find out how it provides futures and commodity option strategists with more bang for their margin buck!
  40. January Effect Revives Battered Stocks

    Make sure you buy in low to ride this phenomenon for all it's worth.
  41. Understanding The Basel III International Regulations

    The Basel III regulations mark a drastic reform in international banking. But how do they impact the future's investment ...
  42. How Riots Influence An Economy

    Economic austerity measures have produced some riots in the hardest-hit countries, but do these protestors’ bold tactics ...
  43. History Of The U.S. Federal Trade Commission

    Since the early 1900s, the Federal Trade Commission has been working to protect U.S. citizens from corporations.
  44. For Higher Stock Returns, Vote Republican Or Democrat?

    The president's political party is correlated to market performance. Find out which party tends to outperform.
  45. How To Evaluate The Quality Of EPS

    Companies can manipulate their numbers, so you need to learn how to determine the accuracy of EPS.
  46. How To Tell If A Company's In Trouble

    Observing a company's behavior can prove beneficial for the mindful investor. Know the signs before you make a reactionary ...
  47. Double Exponential Moving Averages Explained

    This tweak on moving averages gives traders faster access to the information they need.
  48. Are Your Stocks Doomed?

    When a company is headed for trouble, the warning signs are usually there. Learn how to spot disaster.
  49. 5 New Phishing Scams To Watch Out For

    These five scams may seem transparent, but thousands of people fall for them annually.
  50. R&D Spending And Profitability: What's The Link?

    Return on research capital (RORC), can help investors measure how much profit R&D spending actually generates.
  51. Media Mashup: Who Owns Whom?

    You'd be surprised by how many publications fall under the umbrella of one company. Discover the big media companies and ...
  52. The Biggest Financial Market You've Never Heard Of

    Though many traders aren't familiar with it, the forex market is is actually bigger than the NYSE in many ways.
  53. Top 3 Pitfalls Of Discounted Cash Flow Analysis

    The DCF method can be difficult to apply to real-life valuations. Find out where it comes up short.
  54. Do-It-Yourself Analyst Predictions

    Regular investors can build their own financial models using the mosaic theory.
  55. Compound Annual Growth Rate: What You Should Know

    The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story.
  56. Do Financial Decisions Get Better With Age?

    Like a fine wine, you no doubt get better as you get older, but your money choices might not.
  57. Cash: Can A Company Have Too Much?

    Cash is something companies love to have. But if they are not using it there could be problems.
  58. How The Sharpe Ratio Can Oversimplify Risk

    When it comes to hedge funds, this measure is not reliable on its own.
  59. Premier Stochastic Oscillator Explained

    This oscillator has been used since the 1950s by traders and investors to anticipate areas where the market may change direction. ...
  60. Use ROA To Gauge A Company's Profits

    Do you rely too heavily on ROE? Consider using return on assets for a more complete picture.
  61. Top 6 Most Indebted Countries (And Why)

    Is the U.S. debt as bad as it sounds? Take a look at these European countries, and the U.S. doesn't seem so bad.
  62. Catch On To The CCAPM

    The consumption capital asset pricing model smoothes over some of CAPM's weaknesses to make sense of risk aversion.
  63. Tips For Creating Profitable Stock Charts

    Find out how to create well-designed charts that will enhance your market analysis.
  64. Bloodletting And Knights: Medieval Investment Terms

    From bloodletting to ye olde black knights, things on Wall Street are getting downright medieval!
  65. Wall Street History: A Robber Baron And A Beer Baron

    This week in financial history sees the birth of Bud and the richest man in history.
  66. Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  67. Interpreting A Strategy Performance Report

    These key performance metrics will help you decide if your trading strategy is a winner.
  68. What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  69. Find Hidden Stock Gems That Analysts Ignore

    Just because it doesn't get a lot of coverage, doesn't mean a company isn't a great find.
  70. Calculating The Equity Risk Premium

    See the model in action with real data and evaluate whether its assumptions are valid.
  71. Deleveraging: What It Means To Corporate America

    Getting rid of debt is usually a good thing, but companies can also use it to become more profitable.
  72. Stochastics: An Accurate Buy And Sell Indicator

    Find out how stochastics are used to create buy and sell signals for traders.
  73. Deflation: A Two-Sided Coin

    Deflation fears are sweeping the U.S. , but the effects of this economic phenomenon are not all bad.
  74. The Evolution Of Goldman Sachs

    The fraud allegations against them have tarnished the reputation of the firm. But how exactly did they get to this point? ...
  75. Wall Street History: Railroads And Rockefeller

    This week in financial history marks the beginning of antitrust legislation and a huge leap for labor unions.
  76. Operational Risk: A Must-Know For Investors

    This type of risk is often overlooked, but it can mean the downfall of a company - and its investors.
  77. How To Assess A Real Estate Investment Trust (REIT)

    Find out why funds from operations is a superior measure of REIT performance.
  78. The Equity-Risk Premium: More Risk For Higher Returns

    Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium.
  79. Lipstick And The Stock Market: Connection?

    We test the theory that lipstick sales thrive during an economic downturn.
  80. Investing In Fads

    From high-flying to fading fast, fads can mean big money for nimble investors.
  81. 5 Free Or Low-Cost Legal Services

    Legal fees have never been more expensive. Here are some ways for you to save on legal fees while still getting reliable ...
  82. Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
  83. Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  84. How Does Your Margin Grow?

    Risk-management tool SPAN margin boosts profitability prospects by helping to determine when to exit a trade.
  85. Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.
  86. A Disaster-Protection Plan For Your Portfolio

    If you can't predict the future, you'll need to plan ahead to protect your assets from the impact of major world events. ...
  87. Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  88. Airline Stocks Look Set To Soar

    This maligned sector is in better shape than most investors believe.
  89. Is The U.S. Still The Center Of The Economic World?

    A weakening currency and huge debts question the U.S.'s position as the world's dominant economic powerhouse.
  90. Did Derivatives Cause The Recession?

    We may never come to a consensus on what caused the financial collapse, but derivatives definitely share a large part of ...
  91. Creative Accounting: When It's Too Good To Be True

    Accounting practices have matured, but there are still plenty of ways that companies can disguise their financial results. ...
  92. Berkshire's Stock Splits: Good Buy Or Goodbye?

    Warren Buffett's Berkshire Hathaway recently split its stock. Is this a sign to buy?
  93. How Money Makes The Economy Move

    This simple example shows how central banks expand the money supply, and why the money supply must grow for the GDP to grow.
  94. Analyzing Show Biz Stocks

    The glitz and glam of Hollywood could help put some more glitz in your pocket.
  95. Strategies For Quarterly Earnings Season

    Breeze through consensus estimates like the biggest Wall Street forecasters.
  96. Getting The Real Earnings

    EPS helps investors analyze earnings in relation to changes in new-share capital.
  97. Core Earnings Strip Away "Creative" Accounting

    This metric is an attempt to counteract creative accounting, but it poses its own set of challenges.
  98. Earnings Power Drives Stocks

    Internal return on investment helps determine a stock's ability to propel shareholder returns.
  99. Making Sense Of Market Anomalies

    Stocks sometimes thwart the efficient market theory by showing some very unusual patterns.
  100. Your Dividend Payout: Can You Count On It?

    We go over several telling factors that can help you answer this question and avoid losses.
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  3. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  4. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  5. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  6. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
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