Author Archives: DrillingFormulas.Com

About DrillingFormulas.Com

Working in the oil field and loving to share knowledge.

Key Financial Ratios To Evaluate Companies

By | | ,
Leave a comment

In order to evaluate a company’s financial health, there are some important ratios which will help investors get a clearer picture of companies.

Current Ratio – It is the current assets divided by the current liabilities in a company. This measures the ability of a company to pay current its liabilities over the next 12 months. Quick ratio should be at least more than 1. If its value is less than 1, it means that a company has insufficient cash to meet short term debts.

Current Ratio = Current Assets ÷ Current Liabilities Continue reading →

Weighted Average Cost Of Capital (WACC)

By | | ,
Leave a comment

Weighted Average Cost Of Capital (WACC) is a calculation of company cost of capital which is based on a weighted average between debt and equity. Its mathematical expression is listed below;

Weighted Average Cost Of Capital (WACC) 1

WACC represents the minimum return on investment that can be a base line for a company to make a decision for new projects. Generally, companies will accept only projects that have returns more than WACC.

This example will use the previous information from Cost of Debt and Cost of Equity article to demonstrate WACC calculation.

Weighted-Average-Cost-Of-Capital-(WACC)-cover Continue reading →

Earth Structure and Plate Tectonic

By | |
Leave a comment

The basic concept of the Earth structure and Plate Tectonic is good to know for drilling oil and gas wells.

The image below (Figure 1) shows the Earth structure. There are tree compositional layers which are curst, mantel and core. At the center of the Earth, the center core is a solid iron core which is surrounded by a liquid iron core. Core has a range between 2,900 – 6,370 km from surface. Mantel which has its range between 100 – 2,900 km consists of upper and lower mantel. Lower mantle (Meshosphere) is hot but strong due to high pressure however upper mantle is weak, hot and molten. Crust is a surface of the Earth and a majority of the Earth crust is made up of iron, silicon, oxygen and magnesium.

Figure 1 – Earth Structure

Continue reading →

Cost of Equity

By | | ,
Leave a comment

The Cost of Equity is an investment return which a company offers its shareholders in compensation for their income stream and taking risk of investment with a company.

Cost of Equity which is based on the constant dividend growth model is mathematically expressed here.

Cost of Equity = [Dn ÷ P] + G

Where;

Dn = dividend per share to be paid next year

P = average stock price in the year the latest dividend paid

G = expected growth of dividend on next year

A next year dividend is mathematically expressed like this.

Dn = Dc × (1 + G)

Where;

Dc = dividend per share for present year

Therefore,

Cost of Equity = [Dc × (1 + G)] ÷ P + G

Continue reading →