An audit is a process in which independent auditors assess a subject matter. During this process, auditors gather evidence and reach a conclusion on whether the subject matter meets specific requirements. This conclusion is a part of the auditor’s opinion, which they present in a statement known as the audit report. There are two types […]
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Opportunity costs represent a foregone opportunity for an investor or entity when choosing one option over the other. It is a widely used concept in the capital budgeting method when deciding between mutually exclusive projects. Sunk costs represent a type of non-relevant costs that cannot be recovered and already spent. Investment decisions mainly focus on
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Bond yield refers to the return received by the investor. It can be calculated in different ways. The aim is to calculate the income through investment in bonds. Investors can analyze return on investment in bonds through different bond yields. It can be used to analyze the inverse relationship between bond prices and yield as
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The EBITDA coverage ratio is one of several ratios that is used to evaluate a company’s financial strength to meet its debt obligations. This ratio is one of the finest metrics to analyze a company’s financial durability. The EBITDA coverage considers the cash flows of a company rather than operating profit. Thus, it offers a
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Effective annual yield (EAY) or effective annual rate (EAR) considers the compounding effect of return on investment. It provides a realistic annual interest rate of an investment rather than the simple nominal rate. Investors can use the EAY to calculate the actual return on investment. They can also use the EAR to evaluate whether a
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Joints costs incur when more than one product is produced using the same resources. Companies can extract several products out of one main ingredient. Apportioning joint costs can help companies in calculating the correct selling price. Eventually, the decision can impact the company’s long-term profits. A company can use several methods to apportion joint costs.
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Employee stock option (ESO) is a compensation plan for employees and executives. The plan comes in the form of a regular call option that allows employees to buy shares at a specific price and date. Employees can evaluate the stock options just like investors do. They hold the right to exercise the option but not
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Donated capital comes in the form of nonreciprocal transfer of assets to a company. This form of capital is rare with for-profit organizations. However, not-for-profit (NFP) organizations can receive assets and capital donated by individuals and governments. ASC 958-605-25-2 and ASC 845-10-30 combined guide on the accounting treatment of donated capital. What is Donated Capital?
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Stock dividends are dividends issued in the form of new shares rather than cash by a company. It dilutes the share price of the company but the market capitalization remains the same. Large stock dividends are when a company issue more than 25% of new shares in proportion to the total value of existing shares.
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Stock subscriptions are a process that allows investors and employees of a company to purchase stocks over a long period. Investors can subscribe (buy stocks) for stocks in regular intervals. A company may enter into a formal stock subscription agreement with a corporation. Another option for the company is to offer the subscription directly to
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