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“Question not only everybody else’s work, but question your own work as you do it, let alone after it’s done.” William F. Sharpe Nobel Laureate

Quote: William F. Sharpe – Nobel Laureate in Economics

The Capital Asset Pricing Model (CAPM) quantifies the link between an asset’s systematic risk and its expected return, proposing that investors require higher returns for taking on increased market risk.

Term: The Capital Asset Pricing Model (CAPM)

“I favour passive investing for most investors, because markets are amazingly successful devices for incorporating information into stock prices.” Merton Miller Nobel Laureate in Economics

Quote: Merton Miller – Nobel Laureate in Economics

The weighted average cost of capital (WACC) is the average rate a company must pay to all its capital providers—including both equity investors and lenders—weighted by the proportion each source represents in the firm's capital structure, and is commonly used as the discount rate in valuing investments and determining a business’s required rate of return.

Term: Weighted Average Cost of Capital (WACC)

“Ultimately an investment is an instrument of trust as much as it is of belief. Every single part of your strategy is showing you're accountable and understand your responsibility with that. Take ownership.” Henry Joseph-Grant - Just-Eat founder

Quote: Henry Joseph-Grant – Just-Eat founder

The Internal Rate of Return (IRR) is a cornerstone metric in financial analysis, widely adopted in capital budgeting, private equity, real estate investment, and corporate strategy. IRR represents the annualised effective compounded return rate that will make the net present value (NPV) of all projected cash flows (both inflows and outflows) from an investment equal to zero. In essence, it is the discount rate at which the present value of projected cash inflows exactly balances the initial cash outlay and subsequent outflows.

Term: Internal Rate of Return (IRR)

“Risk management is designed expressly for decision makers—people who must decide what to do in uncertain situations where time is short and information is incomplete and who will experience real consequences from their decision.” — Dan Borge, creator of RAROC

Quote: Dan Borge – Creator of RAROC

Risk-Adjusted Return on Capital (RAROC) measures the risk?adjusted return earned per unit of economic capital, enabling like?for?like performance assessment, pricing, and capital allocation across activities with different risk profiles.

Term: Risk-Adjusted Return on Capital (RAROC)

“The purpose of risk management is to improve the future, not to explain the past.” Dan Borge Creator of RAROC

Quote: Dan Borge – Creator of RAROC

Return on Risk-Adjusted Capital (RORAC) evaluates the profitability of a project, business unit, or company by relating net income to the amount of capital at risk, where that capital has been specifically adjusted to account for the risks inherent in the activity under review.

Term: Return on Risk-Adjusted Capital (RORAC)

“Knowledge-building proficiency involves constructive skepticism about what we think we know. Our initial perceptions of problems and initial ideas for new products can be hindered by assumptions that are no longer valid but rarely questioned.” Bartley J. Madden Value creation leader

Quote: Bartley J. Madden – Value creation leader

Cash Flow Return on Investment (CFROI) assesses how efficiently a company generates cash returns from its invested capital, providing a clear measure of real profitability that goes beyond traditional accounting-based ratios like Return on Equity (ROE) or Return on Assets (ROA).

Term: Cash Flow Return on Investment (CFROI)

“The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities.” Michael Jensen Agency Theory Co-founder

Quote: Michael Jensen – “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers”

Free cash flow (FCF) is the cash a company generates from its operations after it has paid the operating expenses and made the investments required to maintain and grow its asset base. It represents cash available to the providers of capital — equity and debt.

Term: Free Cash Flow (FCF)

“Until a business returns a profit that is greater than its cost of capital, it operates at a loss.” Peter Drucker Father of modern management

Quote: Peter Drucker – Father of modern management

Economic value added (EVA) is a measure of financial performance that captures the surplus generated above the required return on the capital invested in the business: the profit left after charging the business for the full economic cost of the capital employed.

Term: Economic profit / Economic value added (EVA)

Compound annual growth rate (CAGR) represents the annualised rate at which an investment, business metric, or portfolio grows over a specified period, assuming that gains are reinvested each year and growth occurs at a steady, compounded pace.

Term: Compound annual growth rate (CAGR)

“The worth of a business is measured not by what has been put into it, but by what can be taken out of it.” Benjamin Graham The “father of value investing”

Quote: Benjamin Graham – The “father of value investing”

Return on Net Assets (RONA), also commonly referred to as Return on Invested Capital (ROIC), is a profitability ratio that measures how efficiently a company generates net operating profit after tax (NOPAT) from its invested capital.

Term: Return on Net Assets (RONA), also commonly referred to as Return on Invested Capital (ROIC)

“There is a role for valuation at every stage of a firm’s life cycle.” Aswath Damodaran Professor, Valuation authority

Quote: Aswath Damodaran – Professor, Valuation authority

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