Net working capital
The difference between current assets and current liabilities.
Route · 22 · 11 terms
Company analysis
Business economics, working capital and earnings quality.
Path goal: Understand the source of cash flows before valuing a business.
Reading sequence
This editorial sequence preserves the Russian curriculum order and uses the existing translated guides.
Foundation
Core explanations: start here if the topic is new.
Fundamental analysis: test the business story with numbers
A working sequence for reading a business and its reports while separating observations, assumptions and unknowns.
Working capital: why resources are not yet cash
How to read the difference between current assets and current liabilities and test its composition and timing.
Revenue recognition: when a sale becomes a result
How to distinguish payment from contract performance and ask when and how much revenue should be recognized.
Peer comparison: comparability first, median second
How to build a fair comparison group and detect differences in dates, earnings, debt and business structure.
Further connections
Additional concepts and practical connections after the foundation.
Business model: what the customer pays for and where cash flow arises
Why “the company operates in a growing market” does not by itself explain the business model.
Cash conversion cycle: how inventory, receivable and payable days connect working capital
Compare the time money is tied up without turning average ratios into a promised payment calendar.
Competitive cycle: why record profit can mean an expensive business
When high profit attracts new capacity, today’s success can create tomorrow’s price pressure.
Consolidated and separate financial statements: where the business boundary lies
Compare results within one perimeter and do not count intra-group turnover as external sales.
Gordon model: which dividends and growth belong in the formula
Derive D1/(ke−g), test payout sustainability and identify the limits of dividend valuation.
Initial margin and variation margin: different monetary roles
An open contract, mark-to-market and account funding explained without assuming that the initial deposit caps the possible loss.
Goodwill after an acquisition: what remains above identifiable assets
Separate the acquisition price from later operating performance and do not treat goodwill as a cash reserve.
Income statement: from revenue to the period result
How to read profit levels, distinguish expenses from payments and analyse changes without inventing universal norms.
Indirect method: how profit becomes operating cash flow
Check the signs of working-capital changes and do not explain the entire cash flow with depreciation alone.
Market capitalization and multiples: compare the right quantities
How to distinguish equity value from business value, choose a ratio denominator and test the limits of the comparison.
Processing spreads: feedstock, product yield and conditional margin
How crack, crush and spark describe different processing models, how to account for product yield and why a price spread is not plant net profit.
Profit margin: separate price, volume, mix and costs
How to explain a change in profit margin through economic drivers rather than confusing revenue growth with improved efficiency.
ROE and the DuPont decomposition: high return on equity does not always mean a strong business
Separate margin, turnover and financing structure while keeping profit and equity on a consistent base.
P/S and EV/Sales: revenue is shared, residual rights differ
Why equal sales do not make companies equally cheap: debt, margin and capital needs.
Value per customer or megawatt: checking an industry denominator
How to use valuation units without treating registration as a customer or capacity as cash flow.
Business segments: why overall growth can hide a weak division
Read segment sales and results together with reconciliations, internal turnover and changes in group structure.
Shares: an interest in a business, rights and uncertain returns
How to distinguish shareholder rights from return expectations, read a worked result and avoid treating a dividend as a guarantee.
Reverse valuation: what growth and margin are already priced in
How to invert a valuation model and distinguish a price’s conditional requirements from a single market forecast.
Key terms
EV/EBITDA: enterprise value relative to EBITDA
The ratio of analytical enterprise value to EBITDA for a comparable period.
Profitability ratios
A definition of profitability ratios, an editorial example and limits of application.
Modified internal rate of return
An educational definition of the modified internal rate of return, with an editorial example and application limits.
Return on sales
The share of a selected profit measure in revenue; net and operating margins describe different results.
Return on assets — ROA
Profit for a period relative to average asset value; the profit numerator must be specified.
Return on equity — ROE
Profit attributable to owners relative to the corresponding average equity.
Return on investment — ROI
The result of an investment relative to its cost; the result and calculation period must be stated explicitly.
Return on invested capital (ROIC)
Operating profit after a notional tax charge relative to the average capital engaged in operating activity.
Enterprise value (EV)
An analytical valuation of a business for different capital providers, not only shareholders.
Variation margin
The cash result of revaluing a futures position under the applicable calculation rules.
Scenario checks
Percentage change and CAGR
Calculate total change and annual growth.
Valuation multiples
Compare P/E and EV/EBITDA assumptions.