Author: John

What Is Financial Leverage

Usually, companies have the choice to choose between either equity finance or debt finance to fund their operations. While equity finance may not usually involve any conditions, debt finance may come with certain restrictions. It is because debt finance providers will limit the risk they want to take on it. …

Business Risk vs Financial Risk

For companies and their investors, identifying and reacting to risks is crucial. Some risks are more critical than others. Usually, companies or investors need to investigate those promptly. Among these businesses, risk and financial risk are often prevalent. There are some differences between both, however, which is necessary to understand. …

Variable Cost vs Fixed Cost

Costs are an essential part of management accounting. They represent a monetary value that companies or businesses spend on producing a product or service. For advanced analysis, companies may classify their costs based on several factors. For example, companies can categorize them based on nature, element, behaviour, or function. When …

How Is Payback Period Calculated

When choosing between various investments, it is necessary to compare them. Whether it is investors or companies, they will face such decisions. There are several aspects of each project they must consider. Similarly, they can use different tools to consider those aspects. One such tool that is prevalent in investing …

Examples of Opportunity Cost

What is Opportunity Cost? Opportunity costs refer to the potential benefits that companies or businesses relinquish when choosing one alternative over another. It is a concept that usually applies to economics and financial management. In other words, it represents the value of the next best option when a company chooses …

Stress Testing of Banks

Banks are a significant part of any country’s economy. Some countries also heavily rely on their financial institutes for their survival. In the case of banks failing, many economies collapse. There are many examples of how banking system failures have affected a country’s or the global economy. Various analytical tools …

Coupon Rate of a Bond

What is a Bond? A bond is a fixed-income instrument that refers to a loan made to a borrower by an investor. Usually, the borrower may be a company or a government entity. A bond gives the bondholder an entitlement to a future payment. Usually, companies or government bodies use …

Sensitivity Analysis vs Scenario Analysis

Investors must base their investment decisions on a set of assumptions and inputs. Sometimes, these assumptions may be uncertain and may impact their judgments. This impact comes in the form of investment risk. Therefore, investors may use various tools to assess the influence that these risks have and compare them …

Formula for Profitability Ratio

What are Profitability Ratios? Profitability ratios are one of the most crucial groups of financial metrics. These are useful in assessing a company’s or business’s ability to generate profits relative to various other metrics. These may include its revenues, equity, assets, or operating costs, among other figures. Profitability ratios show …