Leveraged buyouts refer to the takeovers using debt financing. LBOs often happen outside the control of the acquiree firm. The acquirer may take over the target company for several reasons. The accounting basis for leveraged buyouts is set to analyze the new entity’s control and the transaction’s monetary value. If the takeover meets certain conditions, […]
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Internal controls have become an area of high significance for organizations. It involves the control systems that companies or organizations put in place against risks. Therefore, it also links with the risk management systems that companies employ. Internal controls can be helpful in detecting, preventing, or controlling any significant risks within a company. Most companies
Companies employ internal controls to protect against any unwanted risks. In some cases, these may also help companies improve their operating efficiency. Either way, these controls are crucial for companies in the long run. The primary purpose of internal controls of a company is to prevent or detect and correct, any irregularities within a company’s
Internal audit is a function within companies that involves risk management. Among other things, it deals with a company’s internal control systems and any deficiencies within these. An internal audit department is mandatory within public companies. This department plays a crucial role in the long-term growth and success of companies. Internal auditors follow internal auditing
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Auditing is a process that involves the examination of a subject matter against specific criteria. The most prevalent type of audit is the external audit. This process involves external auditors examining a company’s financial statements. Similarly, internal audits include risk management, assessing internal control systems, ensuring compliance, etc. Regardless of the type of audit, it
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Risk management is an essential part of any company’s operations. The need for this process has increased due to the changes in the business world. Most companies now have many complex systems, which also increases their risks. Therefore, companies must have a robust risk management process to mitigate any risks. One area associated with risk
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Two parties can agree to predetermine an interest rate obligation for a future payment. The agreement is made on the forward rate, hence the name Forward Rate Agreement (FRA). FRAs are over-the-counter instruments that can be arranged by two parties directly. FRAs can be used in interest rate hedging planning. FRAs are particularly useful in
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Interest collars limit the losses due to an adverse movement in interest rate for an underlying asset such as a bond. Collars also restrict the maximum gains due to favorable interest rate movements, though. Interest rate caps are upper limits of an interest rate options contract. In contrast, floors are the minimum interest rate limits
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A Swap is a financial derivative that allows two parties to exchange liabilities or revenue streams from two underlying assets with opposing characteristics. Usually, Swaps involve a fixed cash flow stream and a variable cash stream. Swaps are over-the-counter derivates that are arranged directly by two parties. These instruments do not trade like other marketable
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Theoretical Ex-Rights Price or TERP is the price of the shares immediately after the rights issue. A rights issue is the offering of shares to existing shareholders. As companies issue new shares, it dilutes the company’s shareholding. Thus, its share prices get affected due to rights issues. Since rights attached to existing shares have value,
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