Pro Rata is the Latin word for “in proportion”. It is used to describe a method of allocating or distributing items in proportion to the relative size of each item. In accounting and finance, Pro Rata calculations are used to calculate the portion of an expense that each party should …

For companies in the manufacturing or retail industry, inventory is the primary tool to generate revenues. These companies acquire or create goods they can sell further for a profit. Usually, the process begins with obtaining the required goods that the company can put for sale. Sometimes, it may also involve …

To maintain a sustainable economy, many countries have implemented quotas that limit the volume of goods imported into their country. These import quotas generally serve three main purposes: to protect domestic industries from foreign competition, to safeguard public health and safety, and to preserve scarce resources. Without these quotas, a …

Each debt comes with a seniority ranking that dictates the priority of its repayment when the borrower defaults. This priority occurs on the borrower’s side. However, the lender also gets impacted by it. Usually, seniority rankings are crucial when a company accumulates debt finance from several sources. If the company …

Supply and demand are a major part of any market, and equilibrium quantity is the point where the two forces balance each other out. This point of balance reflects the amount of a good or service that a market will produce and consume at any given time. The equilibrium quantity …

Companies fund their capital structures through equity and debt. While the former comes from shareholders, the latter originates from lenders. Usually, companies use several forms of debt to fund their operations. However, these come with a default risk to the lender. Lenders can recover losses if their loans have collateral …

Mostly in manufacturing businesses, the Law of Diminishing Marginal Utility plays a major role, as it helps to answer the question of how much more a customer will be willing to pay for an additional unit of a product. It states that the satisfaction or utility derived from consuming one …

Some investors may use split financing to acquire two loans with the same collateral. It allows them to split their loans into two sources. However, both loans don’t get the same priority if the borrower defaults. The distinction between the two comes from whether the loan is a first or …

Debt instruments may come with a fixed or variable interest rate. With the former, the lender charges a fixed interest rate on the loaned amount. However, variable interest instruments may involve complex calculations. With these instruments, the lender adds a margin to a benchmark interest rate or index to calculate …

Gross profit or GP is a simple yet important concept that is integral to understanding a company’s financial health. It measures the total revenue generated by a company minus the cost of goods sold, providing insight into how much money was made after expenses have been paid. Gross Profit (GP) …