Finance

Company's balance sheet has three major sections: 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 the double-entry accounting system. The basic accounting equation given below is a simple algebraic formula … [Read more...] about 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 it's different from common shares. Common stock … [Read more...] about What is Preferred stock and how it’s different from common stock

Retrun on equity capital (ROE) is a measure that shows how a company has generated return on its equity capital. To understand what are the factors that has increased or decreased the company's ROE, a usefule technique is to decompose ROE into its compnent parts. DuPont analysis is a method of breaking down return on equity (ROE) into their components to measure which areas are … [Read more...] about 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 or minimum rate of return or financing rate of return. WACC depends on … [Read more...] about 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 financing obligates … [Read more...] about 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 of financing to … [Read more...] about 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 by multiplying current stock price by the total number of shares … [Read more...] about 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 banks to access money. While deciding to increase or … [Read more...] about 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 invest; Wealthy individualsInvestment banksInsurance … [Read more...] about A beginners guide to private equity – Definition, fund and PE Firm