What is Free Cash Flow to the Firm? Free Cash Flow to the Firm (FCFF) represents any cash remaining after deducting a company’s depreciation, taxes, working capital, and other investment costs from its revenues. This amount shows any cash flow available for companies to distribute to their financiers, whether debtholders, …

What is a Chief Financial Officer? A Chief Financial Officer (CFO) is a senior executive in companies, responsible for overlooking financial matters. In any company, a CFO is the highest rank figure in finance. Usually, CFOs are professionals with an understanding of financial matters and who can resolve any related …

What is Corporate Governance? Corporate governance represents a system of rules, practices, and processes which dictate how companies should operate. Technically, corporate governance can be defined as “the system by which companies are directed and controlled in the interests of shareholders and other stakeholders”. The control and direction may come …

Assets are resources that companies own or control and result in future economic inflows. These are expenses that companies and businesses must bear for long-term success. Unlike other expenses, companies cannot charge an asset’s total cost to a single accounting period. It is because the matching principle in accounting requires …

What is the Accounting Rate of Return? The Accounting Rate of Return (ARR) represents the average net income that a company expects to generate from an asset from its capital cost. In other words, it is the return that a company expects on an investment in relation to the initial …

What is an Interest Rate Swap? Interest rate swaps are an example of financial derivative contracts. With interest rate swaps, entities can exchange one source of interest payments with another. There is also another party that agrees to swap the stream with the entity. The interest rate swap occurs based …

What is Share Buyback? A share buyback refers to a process that companies use to buy their outstanding shares in the market. The reason for doing so is to reduce the number of a company’s outstanding shares available on the market. It can provide several advantages to a company but …

Two topics in auditing closely relate to each other. These are audit risk and materiality. While both of these are crucial in any audit assignment, they are different concepts. Therefore, it is necessary to know what each of these is to understand them better. What is Audit Risk? Audit risk …

What is Profit Margin? Profit margin is a metric used to determine the degree of profitability of a company or business. It is one of the prevalent profitability ratios. The purpose of using profit margin ratios is to calculate how much money a company or business makes from its activities. …

When it comes to evaluating assets, there are various methods prevalent in finance. Among those, two common ones include fair value and market value. There are several differences between both of them. However, it is crucial to understand what each of these is first. What is Fair Value? The fair …