Financial Management

The Solvency ratio is a measure to analyze the long-term liquidity risk of an entity. The Basel III accord recommends a minimum of 8% capital reserve requirements for all banks for better liquidity risk management. Solvency ratio is often considered a similar term to liquidity ratio. However, both these terms measure the cash flows, liquidity, […]

The liquidity coverage ratio (LCR) is a measure to analyze the liquidity risk of an entity. The Basel III accord recommends an LCR of 100% for better liquidity risk management. Let’s discuss what is the liquidity coverage ratio and how it is important for banks. What is Liquidity Coverage Ratio (LCR)? The liquidity coverage ratio

Leasing vs financing is a key decision for individuals as well as businesses. Both arrangements come with discrete benefits and some limitations. Let’s discuss leasing v financing and their key differences. What is a Lease? A lease is a contract between two parties where the first party (lessor) agrees to let the second party (lessee)

The debt service coverage ratio (DSCR) is the ability of an entity to repay its debt obligations using net operating cash flows. A positive DSCR means an entity has more cash flows than its current debt obligations, while a negative figure means the inability to service its debts. What is Debt Service Coverage Ratio (DSCR)?

The P/E ratio and earnings yield ratio of a stock can reveal much about the pricing and growth prospects. Both these measures are widely used by investors in stock valuations and company performance analysis. Let us discuss what is the P/E ratio, Earnings Yield, their key differences, and which one is a better measure. What

Interest tax shield means savings taxes through interest cost deductions from profits. It effectively lowers the tax amount that you pay with a debt instrument. Let us discuss what is a tax interest shield and how to calculate it. What is Interest Tax Shield? Interest tax shield refers to savings on taxes by reducing taxable

Scrip dividends are taxable in most cases as cash dividends. However, these special dividends offer shareholders a chance to retain additional stocks and avoid immediate tax liabilities. Let us discuss what are scrip dividends and their tax treatment in different scenarios. What are Scrip Dividends? Scrip dividends are new stocks issued to shareholders by a

The applicable federal rate (AFR) is a reference interest rate issued by the IRS. It is used as a benchmark rate for family loans and private lending arrangements. A lender must charge a minimum interest rate on loans to keep the arrangement consistent with the IRS tax avoidance rules. Hence, they use AFR as a

A scrip issue and a rights issue are both alternative funding methods for listed companies. These methods provide additional equity capital in different ways. Let us discuss what are scrip and rights issues and their key differences. What is Scrip Issue? A scrip or bonus issue refers to additional shares being issued to existing shareholders

The indifference curve describes consumer behavior when they are indifferent between two goods with budget constraints. It links the relationship of choosing one good over the other by keeping the total utility constant at any point. Let us explain what is indifference curve, what are its characteristics, and its limitations in the practical world. What