Author: John

Drawing Account: Definition, Journal Entry, Accounting, Examples, Meaning

Investors invest in a company or business to receive returns in exchange. For companies, these returns come from dividends paid to shareholders. However, other business entities may not use these. For example, sole proprietorships, partnerships, etc., do not pay dividends. Instead, they allow owners to withdraw their profits through a …

Inelastic Demand: Definition, Examples, Meaning, Formula, Curve

In economics, there is a concept known as “inelastic demand.” This term refers to a situation in which consumers are not very likely to change their behavior when it comes to purchasing a particular product. For example, people need food to survive, so the demand for food is considered inelastic. …

Cost Driver: Definition, Examples, Formula, Types

It’s a well-known fact that managing costs are essential for any business to maintain a healthy profit margin. But that’s not always so clear which specific costs are the most crucial to manage. In other words, what are the cost drivers of a business? Many different factors can contribute to …

Mezzanine Financing: Definition, Examples, Meaning, vs Bridge Loan

Companies usually incorporate two types of finance in their capital structure. These comprise debt and equity. However, companies may also receive funds from hybrid instruments. These may include features of both equity and debt finance. One of the most common types of hybrid finance comes through mezzanine financing. Therefore, it …

Public Goods: Definition, Examples, Meaning in Economics

In every economy, for every community or group of people, there is always a need for certain basic goods and services that we collectively agree everyone should have access to. These needs are met through the production of public goods. Public goods are those that are non-excludable and non-rivalrous in …

First Lien Debt: Definition, vs Second Lien Term Loan, Example

Debts fall into several categories based on a common factor. One such classification comes from the lien associated with the specific debt. Usually, they may include first- and second-lien debts. Creditors use these to decrease the default risk on their loans or funds. Before discussing these, it is crucial to …

Alpha: Definition, Calculation, Formula, Usage, Example

Alpha is one of five popular technical investment risk ratios/investment strategies, others are beta, standard deviation, R-squared, and the Sharpe ratio. Active portfolio managers believe adding Alpha to a portfolio can outperform the market and passive investing. They also believe it can reduce the risks and provide higher returns than …

Debt-Rating Approach

The cost of debt is a term that companies use as a part of internal calculations, particularly for WACC (weighted average cost of capital). It represents the expense companies incur for the debt accumulated as a part of their capital structure. In other words, the cost of debt is the …