To gauge the financial stability of a company, it is important to understand its debt incurrence test. The debt incurrence test measures how much debt a company can take on before becoming financially unstable. This is an important measure for companies looking to expand or merge with another company. By …

An interest rate cap is a derivative instrument that involves an agreement between two parties. In this agreement, one party assumes the responsibility to pay the other if the interest rate on a variable loan exceeds an agreed limit. The initial contract between both parties sets the timeframe, interest rate …

Businesses use many strategies to get customers and defeat their competition. One of these strategies is known as loss leader pricing. It’s the technique of lowering the price of a product to draw in customers with the hopes that they’ll buy other higher-priced items as well. Loss leader pricing can …

A company’s capital structure includes both equity and debt. Usually, each source comes with its own cost to the company. Therefore, companies seek to find an ideal mix between the two to run operations and minimize costs. While most people consider the cost of debt as interest expense, it may …

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 …

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 …

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 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 …

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 …

Similar to ROI or return on investment, cash-on-cash return measures the percentage of cash flow that’s returned to the investor after accounting for all operating expenses. CCR is a good metric to use when considering real estate investments because it focuses on the cash that’s being generated by the property, …