Company’s balance sheet has three major section: assets, liabilities and owner’s equity. As a general accounting rule, assets must equals liabilities and owner’s equity. It’s known as balance sheet equation or basic accounting equation, which is the foundation of double-entry accounting system. The basic accounting equation given below is a simple algebraic formula which ensures … Read More » "What is the basic accounting equation"
A company’s stock can be divided into two major types: Common stock or equity shares and Preferred stock or preference shares. Both type of stocks are split into smaller pieces known as shares. Owners of theses shares are known as shareholders or stockholders. In this article, we will discuss what is preferred stock and how … Read More » "What is Preferred stock and how it’s different from common stock"
Price to cash flow ratio is a comparison of current market price per share with operating cash flow per share. It’s considered as part of the profitability ratio. Price to cash flow ratio or P/CF measures how much an investor is willing to pay for per share operating cash flows of the company. To calculate … Read More » "How to calculate price to cash flow ratio of a company"
DuPont analysis is a method of breaking down return on equity into their components to measure which areas are responsible for company’s performance. Its popularized by DuPont corporation to analyze the fundamental performance of the company. It’s also known as DuPont model. ROE is one of the most important indicator to analyze company’s profitability. To … Read More » "What is DuPont analysis of a company"
Weighted average cost of capital of a company is determined as the weighted average of a company’s cost of equity and cost of debt blended together. In finer terms, it represents the rate of return that a project must have in order to attract investors to invest capital. WACC is also termed as cutoff rate … Read More » "How to calculate weighted average cost of capital for a company"
Financial leverage means use of debt or borrowed capital to finance business, acquire additional assets or to increase profit. Financing a business depends on the capital structure of the company. Capital structure means the mixture of debt and equity financing to the business. Equity financing does not create any obligations on the company. However, debt … Read More » "What is financial leverage and how it impacts business decisions"
A business can grow by investing in new plants and equipment for expansion or to enhance its capacity. To fund its expansion, the company has two choices; borrow additional funds from banks or financial institutions or to raise capital by selling additional ownership interests. Both methods have advantages and disadvantages. Management should combine both type … Read More » "What is company’s capital structure and why it matters"
Market capitalization means total market value of the company. This means it’s the amount that you have to pay if you want to buy all the shares of the company at the present price. It’s an indicator of public opinion on company’s net worth. Its measured as the total value street assigns to a company … Read More » "How to calculate stock market capitalization and why it is important"
In India, the reserve bank of India based on its monetary policy can increase or decrease the repo rate. Sometimes they keep the repo rate constant. Repo rate is the interest rate at which RBI lend short term funds to Banks. Similarly, global central banks increases or decreases the interest rates that they charge on … Read More » "How increase or decrease in interest rates affect stock market"
Private Equity firms pool money from number of investors in order to fund or acquire stakes in established companies. In short its known as “PE firm”. Private equity is the fund that these PE firms collect from investors and invest in companies. Here is a list from where PE firms are generally collecting money to … Read More » "A beginners guide to private equity – Definition, fund and PE Firm"