One of the most recognized portals for finance users in the world is Investopedia, for those who do not know them is a kind of Wikipedia about finance.
One of the most interesting tools provided by the web is the development of Investopedia Anxiety Index.
What is Investopedia Anxiety Index?
This index shows the feeling of investors based on the web behavior of more than 10 million users since 2015. Its operation is very simple, based on keywords. In particular, they use 12 keywords and measure URL visits with the most traffic on these topics.
Once released, they performed a regression with these parameters to get their behavior in previous years, since the information was available on the web.
How is the IAI data interpreted?
The interpretation of the index is very simple:
Levels below 100: indicate low levels of intensity
Levels above 100: present high anxiety
The index is also composed of 3 indicators that measure the level of investor anxiety in relation to:
Macroeconomics: measures interest in the global economy, inflation or deflation
Markets: short sales, volatility
Debt and credit: bankruptcy, solvency and bankruptcies
How important are these indicators?
Although it seems that these types of surveys are not very relevant, the high level of data they deal with and the use of big data offers us a very interesting indicator of investor behavior.
Even on the web itself, the high level of correlation between its indicator and VIX is noted, as shown in the image below:
Even one of the creators defends in the video below that this indicator complements VIX as it shows patterns or intentions of investor behavior that VIX itself cannot measure, even advances them.
As the graph above shows at the beginning of the Lehman Brothers crisis, the level of anxiety predicted long before VIX the market’s concern with the economic situation.
What is the profitability of the cash flow and how to interpret EV/EBITDA?
In company analysis, cash flow is particularly important and in relation to a company’s cash flows we can extract the company’s value (Enterprise Value) in relation to its Ebitda. The EV / Ebitda is one of the most used indexes, as well as the profitability of the cash flow, which will determine the profitability of the company based on the income obtained in cash. At the same time, we will also see why EV/Ebitda is important and how it is normally used to make comparisons.
EV / Ebitda (Enterprise Multiple) What is it?
It is the value of the company (Enterprise Value) in relation to its Ebitda (Results before interest, taxes, depreciation and amortization). It is one of the most used proportions.
The Enterprise Value is what you would pay for the company if you wanted to buy it in full. It is calculated by adding to the market value the debt that the company has, since whoever acquires the company will have to pay the debts. The complete formula of Enterprise Value :
Enterprise Value = Market capitalization + Financial Debt + Preferred Shares + Minority Interests + Financial and Operational Leases – Excess Cash – Temporary Financial Investments – Extraordinary Assets.
Ebitda, as we said, are the benefits before interest, taxes, depreciation and amortization. In other words, the benefits must be added to these magnitudes.
The EV / EBITDA is positively correlated with the growth rate in free cash flow (FCF) and is negatively related to the global risk level of the company and the weighted average cost of capital (WACC)
Why is EV / Ebitda useful?
When comparing companies with different degrees of leverage, it can be a more faithful relationship.
EBITDA is useful for evaluating capital intensive companies with high levels of depreciation and amortization.
Ebitda is generally positive, although profit per share can be negative.
EV / EBITDA also has several drawbacks, however:
Although it has some disadvantages, we can take into account that if the current (current assets minus current liabilities) is increasing, the EBITDA will exaggerate the cash flows of operations.
The free cash flow takes into account capital expenditures (CapEx) , more related to the Ebitda valuation theory. Ebitda will be representative if capital expenditures are equivalent to depreciation expenses.