Which is better for capital budgeting – IRR or NPV?

July 7, 2024 No Comments

A: In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each approach has its own distinct advantages and disadvantages. All other things being equal, using internal rate of return (IRR) and net present value

Which is better: A high or low equity multiplier?

July 7, 2024 No Comments

A: An equity multiplier measures a company’s financial leverage by using a ratio of the company’s total assets to its stockholders’ equity. Generally, a lower equity multiplier indicates a company has lower financial leverage. It is better to have a low equity multiplier, because a

Which metric should I pay more attention to, EV/EBITDA or P/E?

July 7, 2024 No Comments

A: The price-to-earnings (P/E) ratio is one of the most popular and widely used financial metrics, but it has a number of inherent flaws for which the enterprise value to EBITDA (EV/EBITDA) ratio compensates. The EV/EBITDA ratio is a financial metric that measures the return

Which types of industries have the largest capital expenditures?

July 7, 2024 No Comments

A: Capital expenditures are major purchases, such as facilities and equipment, that companies make to maintain or expand their business. Because such purchases involve acquiring assets that provide value and usefulness for a company for a period of several years, companies recover the cost of

Who actually declares a dividend?

July 7, 2024 No Comments

A: It is a company’s board of directors who actually declares a dividend. The declaration date is the first of four important dates in the process of a company paying a dividend. How a Company Handles Paying a Dividend Before a cash dividend is declared

Why are capital expenses (CAPEX) treated differently than current expenses?

July 7, 2024 No Comments

A: Current expenses are the necessary purchases that keep your business going from day to day such as rent, utility bills and office supplies. They are short-term purchases, or those used for less than one year, with no long-term effect on the profitability of a

Why are efficiency ratios important to investors?

July 7, 2024 No Comments

A: When analyzing a company’s potential for investment, it is important to examine its financial performance from every angle. While metrics that measure a company’s ability to turn profit are of paramount importance, the efficiency with which they do so also bears scrutiny. A company

When is a call option considered to be “in the money”?

July 7, 2024 No Comments

A: A call option gives the buyer or holder the right, but not the obligation, to buy the underlying security at a predetermined strike price on or before the expiration date. “In the money” describes the moneyness of an option. Moneyness describes the relationship of

When is accrual accounting more useful than cash accounting?

July 7, 2024 No Comments

A: The accrual accounting method is more useful than the cash accounting method when a person or company is trying to understand the performance of a business over a specified time period. Under the accrual accounting method, all revenue and expenses are matched together. All

When is an expense ratio considered high and when is it considered low?

July 7, 2024 No Comments

A: A number of factors determine when an expense ratio is relatively high or low, but a good, low expense ratio is generally considered to be around 0.5-0.75% for an actively managed portfolio, while an expense ratio greater than 1.5% is considered on the high

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