If a company has a high debt to capital ratio, what else should I look at before investing?

June 30, 2024 No Comments

A: A variety of equity valuation metrics can be utilized to evaluate a company along with the debt to capital ratio to get a more complete picture of the company’s viability as an investment. The debt to equity ratio can be used as an alternative

In what types of financial situations would credit spread risk be applied instead of default risk?

June 30, 2024 No Comments

A: Default risk and spread risk are the two components of credit risk, which is a type of counterparty risk. Think of default risk as more closely associated with the general conception of counterparty risk: noncompliance with the specifications and terms of a contract. Spread

In which industries is Average Collection Period most important?

June 30, 2024 No Comments

A: The industries in which average collection period – the median amount of time necessary for a business to recover its receivables – is most important are those in which receivables make up the greatest portion of cash flows. These industries include banks and financial

Is a deficit in the balance of payments a bad thing?

June 30, 2024 No Comments

A: First, it’s important to distinguish between the balance of payments and the current account. When the terms “trade deficit” or “trade surplus” are used in media, they are almost always references to the current account. The current account is just one part of the

Is it possible for a company to have a positive cash flow and a negative net income?

June 30, 2024 No Comments

A: This situation may seem a bit counter-intuitive at first, but it is actually quite common and not too difficult to understand. Let’s break down the factors at play to examine more closely how a company can have a negative net income and a positive

Is it possible to beat the market?

June 30, 2024 No Comments

A: “Beating the market” means trying to earn an investment return greater than that of the S&P 500 index, one of the most popular benchmarks of U.S. stock market performance. Investment fees are one major barrier to beating the market. If you take the popular

Is return on sales (ROS) the same as profit margin?

June 30, 2024 No Comments

A: In accounting and finance, return on sales, or ROS, is almost always the same as profit margin. Each term refers to a financial profitability ratio that shows the average profit earned on the average dollar of revenue. While there could be small differences based

Is there a downside to having a high liquidity ratio?

June 30, 2024 No Comments

A: In terms of corporate financing, liquidity ratios describe the ability of a firm to pay off short-term debt obligations with cash on hand or short-term assets. Common liquidity ratios include the current ratio and the acid test ratio, also known as the quick ratio.

Is there an easy way to do financial forecasting in Excel?

June 30, 2024 No Comments

A: There is no easy way to conduct financial forecasting. All forecasting involves the technically impossible act of predicting the future. Nonetheless, forecasting is essential for equity valuation and internal budgeting. The best financial forecasts are educated quantitative guesses founded on a very nuanced understanding

How should a change in accounting principle be recorded and reported?

June 30, 2024 No Comments

A: A change in accounting principle is the term used when a business selects between different generally accepted accounting principles or changes the method with which a principle is applied. Changes can occur within accounting frameworks for either generally accepted accounting principles, or GAAP, or

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