Definition Credit spread refers to the yield differences between two bonds of the same maturity and different credit quality. One of the bonds is typically set as a benchmark. For instance, one bond can be a US Treasury bond (benchmark), and the other can be a corporate bond; there is an expected yield difference between […]
What is Credit Spread? Definition, Formula, Example, Interpretation, and More Read More »
The cash operating cycle is the time taken by the business to realize its cash investment. In simple words, the business has to invest cash in purchasing the raw material, labor, overheads, and other business-related operations. However, it takes time for the business to realize cash, and holding of cash incurs finance expenses. Hence, businesses
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The cash conversion cycle measures the number of days between your date of payment for the goods and the date of receiving cash from customers. In simple words, it’s the time between cash going from the business and cash being received by the business. On the other hand, the operating cycle measures the number of
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Overcapitalization occurs when a business acquires more capital investment than needed. It may require substantial capital investment for working capital or capital investment projects. However, inaccurate forecasting and other reasons may lead a business to excessive capital. Overcapitalization can have negative impacts on the working capital management of a business. It also affects the profitability
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Overtrading means planning an aggressive and overambitious growth plan. It results when a business undertakes trading activities more than the resources it possesses. Overtrading is a working capital management problem and its causes and solutions also revolve around it. A business must fully understand the reasons for overtrading to create an effective plan to reduce
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Enterprise value (EV) and market capitalization (or market cap) are important metrics to analyze the value of a company. The market cap figure offers valuable information about the equity value of the firm. Contrarily, the EV calculations consider the equity value, debt incurred, and cash held by a company. Thus, it offers a comprehensive analysis
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Market capitalization is theoretically the market value of the equity of a company or corporation. It represents the equity side of the total valuation of a company. Market cap can be used as a useful tool in the total market valuation analysis. However, unlike the common notion, it does not represent the total market value
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Companies obtain capital from two sources, including equity and debt. Equity is the finance that comes from a company’s shareholders. Usually, this equity is in the form of shares or preferred stocks. These shares may also come with voting rights. Debt, on the other hand, is finance received from third parties. It usually carries an
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When companies raise finance, they generally have two options. The first is equity, which represents funds they can get from shareholders. Usually, equity is an easier option for companies due to the availability of these funds. Companies can get equity finance from new shareholders or existing ones. However, equity finance is usually more expensive due
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Companies and businesses need finance to operate. Some companies have affluent owners that provide them with this finance. Others can raise finance through their existing shareholders. Similarly, some companies can also generate funds from the public. However, small companies and startups usually don’t have these facilities. For these companies, obtaining finance is a substantial challenge.
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