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Commercial Real Estate Valuation: Cap Rate Approach

Fundamental valuation of commercial real estate is similar to fundamental valuation of a stock, the intrinsic value of the property depends on the cash flows that it generates. This is known broadly as the income approach to valuation, which can be further broken down into 3 variations: Cap rate approach

Economic Calendar

Major Economic Data Releases Economists and analysts at major sell side and buy side institutions will prognosticate on where these numbers end up. Theoretically, current asset prices reflect these expectations. If numbers are better than expected, this will be a positive for affected assets and vice versa. Country specific data will lead

APV Method: Adjusted Present Value Analysis

The standard Discounted Cash Flow (DCF) method is the typical tool used to value firms, but one drawback its inability to handle changing debt to equity levels. As we know, higher debt offers a higher tax shield, which in turn increases both firm value and equity value. To explicitly account

Introduction to Capital Structure

Firms can choose to finance themselves with a number of securities: shares, bonds, preferred shares, convertible bonds, etc. These securities can be classified into two broad categories, debt and equity, and each comes with its own cost. Capital structure describes the way a firm finances itself. Data from Statistics Canada, 2009 Capital

Value Capture Model

Porter's five forces, founded in the 1980's, is the classical framework used to understand and analyze competitive forces in an industry. In the 1990's, a new framework was formed, the Value Capture Model. The Value Capture Model extends on previous frameworks in two ways. One, it formally describes competition as a

Statistical Inference and Hypothesis Testing

Whenever we observe data, we are usually observing one or a few samples from a much larger population. For example, if we are looking at daily stock market returns for AAPL for last year, we are looking at only a small portion of the overall daily returns. More often than

Multivariate Regression and Interpreting Regression Results

Simple linear regression (univariate regression) is an important tool for understanding relationships between quantitative data, but it has its limitations. One obvious deficiency is the constraint of one independent variable, limiting models to one factor, such as the effect of the systematic risk of a stock on its expected returns.

Understanding Porter’s Five Forces

Porter's five forces is the most famous concept in strategy, and is a part of every business undergrad/MBA curriculum. The concept is a succinct yet brilliant way of describing the competitive forces in an industry. For banking, it is an immensely useful framework for industry analysis, a key part of

Modern Portfolio Theory and the Capital Allocation Line

In our Capital Asset Pricing Model post, we discussed risk and return for stocks. We also discussed the use of the relationship to value stocks, by interpolating what the return for a stock should be given a certain level of risk. We will build on these concepts and discuss how

Accounting Estimates: Managing Earnings

In our other accounting estimates articles, we talked about the discretion that management has in the income statement and the balance sheet. In this article, we will dive deeper into the incentives that management may have to manage these estimates. What is Earnings Management? Despite the discretionary nature of some of the

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