Whitepaper — KPI & Valuation Engine

1) Executive Summary

This document explains how we compute financial KPIs and intrinsic valuations. The engine follows widely accepted practices in equity research and corporate finance: FCFF-based DCF with Mid-Year convention, CAPM/WACC, EVA & Residual Income, Gordon DDM, and TTM/Forward multiples. Robust guards and diagnostics make outputs resilient to missing or noisy data.

Standards CAPM/WACC, Damodaran value-driver logic, Gordon terminal value, Mid-Year discounting (configurable; TV defaults to year-end discounting).
Data Alpha Vantage financials (annual/quarterly), estimates, shares, prices, dividends.
Policy IFRS-16 leases are excluded from WACC/EV/IC for consistency and source-noise avoidance.
Safety r>g guard, clamped growth/ratios, terminal-value share warnings; soft FX guard (mismatch is flagged, no auto conversion, models still run).
Returns Shareholder Yield and Owner Yield (extended) are computed vs. current market cap. An FY-based variant may be added later.

2) Data & Preprocessing

TTM: sum of the latest 4 quarters per line item; if any quarter is missing, the TTM is null and we may fall back to annual figures (with diagnostics).
Quarterly snapshots: latest and t−4Q for Debt, Cash, Equity, Assets, Current A/L, Inventory; used for averages and ΔOWC/ΔNWC.
Zero-Debt handling: true zero debt is stored as 0, not null.
EV alignment: adjusted EV includes minority interest and preferred equity; leases are excluded (IFRS-16) to avoid mixing lease interest into cost of debt.
Price basis: current price inputs use Alpha Vantage TIME_SERIES_WEEKLY. The app takes the latest week's OHLC average, (Open + High + Low + Close) / 4, as a smoothed weekly market price. It is not an adjusted daily close.
Currency: if reporting currency ≠ price currency, we log a diagnostic (currency_mismatch) and proceed; no FX conversion is applied.
Shares normalization: diluted shares must be > 0; otherwise per-share metrics are suppressed and a warning is emitted.

3) Settings & Parameters

Risk-free rate rf, market rate rm, beta β (from Alpha Vantage, unmodified), DCF horizon N, terminal growth g∞.
Mid-Year convention is used for annual FCFF (t−0.5 exponents). Terminal value discounting is configurable; default is year-end (t=N).
Operating tax bounds 10–30%, NWC% clamp ±50%, reinvestment clamp [−100%, +200%], WACC clamp [0%, 50%], ROIC_TV clamp to WACC ±200 bps.

4) Core Concepts

Invested Capital (IC)

Operating capital employed: Equity + Debt + Minority + Preferred − Excess Cash − Non-Operating Assets. Averaged over t and t−4Q when available. Leases are excluded by policy.

NOPAT

After-tax operating profit: EBIT × (1 − tax). Tax rate derived from cash taxes/EBIT (preferred) or tax expense/IBT, with bounds and fallback.

ROIC

Return on invested capital: NOPAT / avg(IC). A core measure of value creation vs. WACC.

Reinvestment (R)

Growth investment proxy: (Capex − D&A) + ΔWC scaled by NOPAT; guarded with clamps.

Cost of Equity

CAPM: k_E = rf + β·(rm − rf) using data-source beta as is.

WACC

Weighted average of post-tax cost of debt and cost of equity using market weights. Minority and preferred are treated equity-like in weights; leases excluded. Soft-clamped for stability.

NOPAT = EBIT · (1 − τ) ROIC = NOPAT / avg(IC) R = ((Capex − D&A) + ΔWC) / NOPAT kE = rf + β·(rm − rf) WACC = wE·kE + wD·kD (post-tax kD) + wM·kE + wP·kE (minority & preferred treated equity-like)

5) DCF Models (FCFF)

5.1 Mid-Year Convention & Terminal Value

Cash flows in year t are discounted with exponent t−0.5. The terminal value uses Gordon growth with r > g∞ guard. Discounting of TV: default year-end (t=N), optional mid-year-consistent (t=N−0.5).

TV = FCFF_N · (1 + g∞) / (r − g∞)

5.2 Enterprise to Equity Bridge

We value the firm (EV) first, then bridge to equity:

Equity Value = EV − NetDebt − Minority − Preferred + Non-Operating Assets Per-Share = Equity Value / Shares NetDebt = Debt − Cash

5.3 DCF 1 — Value-Driver (TTM)

Growth: g = ROIC × R (bounded). FCFF_t = NOPAT_t · (1 − R).
PV of FCFF with mid-year discounting + terminal value; diagnostic reports terminal share.

5.4 DCF 2 — Constant / No-Growth

FCFF ≈ NOPAT + D&A − Maintenance Capex (ΔWC = 0). Constant over horizon, then terminal.

5.5 DCF 3 — Forward (Estimates)

Revenue path from current/next FY estimates; growth fades toward g∞.
EBIT, D&A, Capex margins and NWC% follow linear paths with default targets = TTM.
FCFF_t = NOPAT_t + D&A_t − Capex_t − ΔNWC_t.
Terminal: FCFF_N+1 = NOPAT_N · (1+g∞) · (1 − R_TV) with R_TV = g∞/ROIC_TV (ROIC_TV clamped to WACC ±200 bps).

5.6 Forward One-Year Cash Metrics

Market Cap/FCFF (Forward): Price × Shares / FCFF_Y1 — computed independently of EV when Shares > 0.
EV/FCFF (Forward) and FCFF Yield (Forward) are reported only if EV_adj is available and FCFF_Y1 > 0; otherwise a diagnostic is emitted.

6) Multiples & Yields

We compute TTM and Forward multiples using adjusted EV aligned with DCF bridges: includes minority and preferred; excludes IFRS-16 lease liabilities. Free cash flow yields are calculated on EV_adj. Price to Cash Flow (TTM) uses OCF per share.

7) Dividends & Cash Returns

Dividend Yield = DPS_TTM / Price; payout ratio only for positive EPS.
Shareholder Yield (current snapshot) = (Dividends + Net Buybacks) / current Market Cap.
Owner Yield (extended) = (Dividends + Net Buybacks + Net Debt Reduction) / current Market Cap.
An FY-based variant (using Market Cap at FY) is a potential extension.

8) EVA, Residual Income, MVA & Tobin’s Q

ROIC vs WACC Spread = ROIC − WACC.
EVA = NOPAT − WACC · avg(IC).
Residual Income = Net Income − k_E · avg(Equity) (also per share).
MVA = MVIC_adj − IC_t; Tobin’s Q = MVIC_adj / Operating Assets (with non-operating assets and any excess cash removed).
DDM Fair Value per Share = DPS_TTM × (1 + g_div) / (k_E − g_div), only when k_E > g_div.

9) Diagnostics & Guards

FX: currency mismatch is logged (currency_mismatch), no auto conversion.
Shares: if shares ≤ 0 or missing, per-share metrics and DCF per-share outputs are suppressed with a warning.
Terminal: r ≤ g guard; TV share warnings (> 80%).
Clamps: WACC [0%, 50%], NWC% [−50%, +50%], Reinvestment R [−100%, +200%], ROIC_TV ≈ WACC ±200 bps.
Coverage: interest-coverage flagged if interest missing/zero; “not meaningful” when EBIT ≤ 0.
Capital weights: warnings when E/D weights incomplete; cost of debt flagged if interest or avg debt missing.
Forward EV/FCF: diagnostic if FCFF_Y1 ≤ 0 or EV not available.
IFRS-16: policy_ifrs16_excluded = true; if leases reported, a meta flag (leases_present) is set.

10) Metric Catalog — What it shows & why it matters

Profitability

Gross Margin

Shows: Value capture after COGS; pricing power & product mix.

Why it matters: Early indicator of competitive dynamics and cost inflation.

= Gross Profit / Revenue (TTM)

EBIT Margin

Shows: Operating efficiency before financing & taxes.

Why it matters: Links to NOPAT and FCFF generation capacity.

= EBIT / Revenue (TTM)

Net Margin

Shows: Bottom-line profitability after all expenses.

Why it matters: Captures full P&L, comparable across peers with caution.

= Net Income / Revenue (TTM)

ROE

Shows: Return to common equity holders.

Why it matters: Capital efficiency; affected by leverage and buybacks.

= Net Income / avg(Equity)

ROA

Shows: Profitability per unit of assets.

Why it matters: Useful for asset-heavy sectors; leverage-neutral view.

= Net Income / avg(Assets)

ROIC

Shows: Return on operating capital employed.

Why it matters: Core indicator of value creation vs. WACC.

= NOPAT / avg(IC)

Growth

Revenue Growth YoY (actual)

Shows: Top-line momentum vs. last FY.

Why it matters: Driver for operating leverage and scale effects.

= Revenue_t / Revenue_t−1 − 1

EPS Growth YoY (actual)

Shows: Earnings momentum per share.

Why it matters: Sensitive to buybacks, margins, and tax effects.

= EPS_t / EPS_t−1 − 1

FCF Growth YoY (actual)

Shows: Cash generation acceleration.

Why it matters: Funds reinvestment and distributions without dilution.

= FCF_t / FCF_t−1 − 1

Revenue Growth YoY (forecast)

Shows: Consensus top-line expectations for next FY.

Why it matters: Anchors forward multiples and DCF scenarios.

= Rev_est,next / Rev_FY − 1

EPS Growth YoY (forecast)

Shows: Expected earnings per share momentum.

Why it matters: Inputs for forward P/E and value inflection points.

= EPS_est,next / EPS_base − 1

Capital Structure & Liquidity

Debt to Equity

Shows: Balance-sheet leverage.

Why it matters: Risk capacity, covenant headroom, cost of capital.

= Debt / Equity (latest)

Net Debt to EBITDA

Shows: Debt burden relative to cash earnings.

Why it matters: Widely used leverage covenant and rating metric.

= (Debt − Cash) / EBITDA_TTM

Equity Ratio

Shows: Equity share in total assets.

Why it matters: Long-term solvency buffer; capital intensity lens.

= Equity / Assets (latest)

Interest Coverage

Shows: Ability to service interest from operations.

Why it matters: Stress resilience; credit risk signal.

= EBIT / |Interest Expense| (TTM)

Current Ratio

Shows: Short-term liquidity cushion.

Why it matters: Near-term obligations vs. current assets.

= Current Assets / Current Liabilities

Quick Ratio

Shows: Stringent liquidity (ex-Inventory).

Why it matters: Inventory-heavy models may overstate current ratio.

= (Current Assets − Inventory) / Current Liabilities

Valuation — TTM

P/E (TTM)

Shows: Price per unit of earnings.

Why it matters: Simple, popular; sensitive to accounting and cycles.

= Price / EPS_TTM

P/S (TTM)

Shows: Price per unit of sales.

Why it matters: Useful when earnings are depressed; compare margins.

= Market Cap / Revenue_TTM

P/B (TTM)

Shows: Price vs. accounting equity.

Why it matters: Asset-heavy sectors; influenced by buybacks and write-downs.

= Market Cap / Equity (latest)

EV/EBIT (TTM)

Shows: Enterprise value per operating profit.

Why it matters: Capital-structure neutral; aligns with DCF.

= EV_adj / EBIT_TTM

EV/EBITDA (TTM)

Shows: EV per cash-earnings proxy.

Why it matters: Popular for comparables; mind Capex/NWC.

= EV_adj / EBITDA_TTM

EV/Sales (TTM)

Shows: EV per unit of revenue.

Why it matters: Early-stage or low-margin businesses.

= EV_adj / Revenue_TTM

EV/FCF (TTM, FCFF)

Shows: EV per free cash flow to the firm (unlevered).

Why it matters: Direct link to intrinsic value; neutral vs. leverage.

= EV_adj / (NOPAT + D&A − Capex − ΔWC)_TTM

EV/FCF (TTM, legacy levered proxy)

Shows: EV per (OCF − Capex) as a practical proxy.

= EV_adj / (OCF − Capex)_TTM

Price to Cash Flow (TTM)

Shows: Price per operating cash flow per share.

Why it matters: Earnings quality cross-check.

= Price / (OCF per Share)

Earnings Yield (TTM)

Shows: Earnings per $ of price.

Why it matters: Inverse of P/E; useful vs. bond yields.

= EPS_TTM / Price; fallback = Net Income_TTM / Market Cap

FCF Yield (TTM, FCFF)

Shows: Cash return on enterprise value (unlevered).

= (NOPAT + D&A − Capex − ΔWC)_TTM / EV_adj

Valuation — Forward

P/E (Forward)

Shows: Price per next-FY earnings.

Why it matters: Embeds consensus growth & margin expectations.

= Price / EPS_est,next

P/S (Forward)

Shows: Market cap per next-FY sales.

Why it matters: Early view for scaling companies.

= Market Cap / Revenue_est,next

EV/Sales (Forward)

Shows: EV per next-FY revenue.

Why it matters: Capital-structure neutral forward lens.

= EV_adj / Revenue_est,next

EV/FCF (Forward)

Shows: EV per next-year FCFF estimate.

Why it matters: Links near-term cash to price.

= EV_adj / FCFF_est,Y1 (only if EV available and FCFF_Y1 > 0)

Market Cap/FCFF (Forward)

Shows: Equity market value per next-year FCFF.

= Price × Shares / FCFF_est,Y1

Earnings Yield (Forward)

Shows: Earnings per $ of price next year.

= 1 / P/E_forward

FCF Yield (Forward)

Shows: Expected cash return on EV (unlevered).

= FCFF_est,Y1 / EV_adj (only if EV available and FCFF_Y1 > 0)

Dividends & Returns

Dividend Yield

Shows: Cash distribution per $ invested (price).

= DPS_TTM / Price

Payout Ratio

Shows: Share of earnings paid out as dividends.

= DPS / EPS (only if EPS > 0)

Shareholder Yield

Shows: Cash/equity returned via dividends and net buybacks relative to current market cap.

= (Dividends + Net Buybacks) / Market Cap_current

Owner Yield (extended)

Shows: Shareholder yield plus net debt reduction (repayments − issuance), using current market cap.

= (Dividends + Net Buybacks + Net Debt Reduction) / Market Cap_current

11) Limits & Extensions

Forward margins default to TTM targets; maintenance Capex is a κ×D&A proxy.
β from the data source is typically levered; un/levering and target capital structure can be added later.
Optional FX normalization and lease policy switches may be exposed in settings in the future.
Excess cash is currently set to zero (conservative). A detection rule can be introduced later.

12) Compliance & Usage

The app visualizes data and computes KPIs; it does not provide investment advice.
Attribution to data providers and adherence to API usage limits are required.
Key assumptions and settings should be visible to users for transparency.

13) Glossary & Abbreviations

TTM — Trailing Twelve Months (sum of latest 4 quarters).
FY — Fiscal Year.
FCFF — Free Cash Flow to the Firm (unlevered): NOPAT + D&A − Capex − ΔWC.
OCF — Operating Cash Flow (cash flow from operations).
Capex — Capital Expenditures.
D&A — Depreciation & Amortization.
ΔWC — Change in Net Working Capital; OWC — Operating Working Capital (A/R + Inventory + Other CA − A/P − Deferred Rev − Other CL); NWC — Current Assets − Current Liabilities.
EBIT — Earnings Before Interest & Taxes.
NOPAT — Net Operating Profit After Tax: EBIT × (1 − tax).
IC — Invested Capital (operating): Equity + Debt + Minority + Preferred − Excess Cash − Non-Operating Assets.
ROIC — Return on Invested Capital: NOPAT / avg(IC).
CAPM — Capital Asset Pricing Model; k_E = rf + β·(rm − rf).
WACC — Weighted Average Cost of Capital (post-tax cost of debt).
DDM — Dividend Discount Model (Gordon Growth).
EVA — Economic Value Added: NOPAT − WACC·avg(IC).
Residual Income — Net Income − k_E·avg(Equity) (also per share).
EV — Enterprise Value; EV_adj — EV adjusted for minority & preferred (leases excluded).
MVIC — Market Value of Invested Capital; MVIC_adj — adjusted for policy items.
MVA — Market Value Added: MVIC_adj − IC_t.
Tobin’s Q — MVIC_adj / Operating Assets.
g∞ — Long-run terminal growth rate; τ — effective operating tax rate; κ — factor for maintenance Capex proxy.
β — Beta (systematic risk measure, as provided by data source).