What is Amortization? Amortization is a method through which businesses lower the book value of their loans or intangible assets. It is similar to depreciation for assets. Both of these techniques help companies record the gradual decrease in an asset’s book value. However, depreciation only applies to property, plant, and …

Manufacturing companies incur various costs within different processes. These costs are vital in helping companies generate revenues and make profits. One of the essential items for those companies includes raw materials, which contribute to a significant portion of the overall expenses. However, there are other costs as well, which can …

In a previous post, we presented an article on using an econometric model for predicting the P/E ratio. In this post, we will discuss a different approach for predicting a firm’s financials. Reference utilized the Gradient boosting method for predicting a firm’s profitability. Gradient boosting is a method that …

Efficiency is one of the primary factors in a company’s success. There are several metrics that provide valuable insights into a company’s operating efficiency. One of these includes the net operating assets. However, it is crucial to know about operating assets and liabilities first. What are Operating Assets and Liabilities? …

The matching principle in accounting requires accountants to match the expenses with their related revenues. Sometimes, however, accountants may need to estimate figures. Once they establish the actual value, they must adjust their accounts to reflect the actual transaction or position. A term related to similar adjustments is ‘true up’. …

What is a Foreign Exchange Gain and Loss? Most companies or businesses deal in various currencies due to the nature of their operations. It may include transacting with foreign suppliers or customers, overseas operations, foreign investments, etc. Usually, companies incur a gain or loss on each transaction due to variations …

In a previous post, we highlighted an article that showed how useful accounting numbers are. In this post, we will present a concrete example of an application of accounting numbers in portfolio management. Reference showed that the Price-to-Earnings ratio is a mean-reverting process, and it can be accurately estimated …

What are Mortgage-Backed Securities? Mortgage-backed securities (MBS) are financial instruments that have similar characteristics as bonds. These securities use mortgages or a collection of mortgages as collateral. Like other financial instruments, MBS also gets traded in the market. Mortgage-backed securities are a type of asset-backed securities and allow investors to …

What are Credit Default Swaps? A credit default swap (CDS) is a financial instrument that allows investors to exchange their credit risk with another party. It is a type of swap, which is a financial derivative. Credit default swaps require one party to acquire a CDS from another party. It …

What are Preference Shares? Preference shares, also known as preferred stock, are a type of stock that companies issue. Under some specific circumstances, the shares will get preferential treatment over ordinary or common shares. These circumstances may include the distribution of dividends or compensation in case the underlying company liquidates. …