What does a high weighted average cost of capital (WACC) signify?

July 7, 2024 No Comments

A: A high weighted average cost of capital, or WACC, is typically a signal of higher risk associated with a firm’s operations. Investors tend to require additional return to assume additional risk. Let’s back up a bit. A company’s WACC can be used to estimate

What does a negative correlation coefficient mean?

July 7, 2024 No Comments

A: A negative correlation coefficient means that, for any two variables X and Y, an increase in X is associated with a decrease in Y. A negative correlation demonstrates a connection between two variables in the same way a positive correlation coefficient does, and the

What does financial accounting focus on?

July 7, 2024 No Comments

A: The focus of financial accounting is on summarizing and reporting a business’s financial position to entities outside the business with a vested interest, such as stockholders, creditors, government agencies and suppliers. The counterpoint to financial accounting is managerial accounting, which provides information to those

What does it mean to be “above water”?

July 7, 2024 No Comments

A: The term “above water” is used to describe any situation in which the ending or current value of a subject is higher than its beginning or opening price. In accounting, an asset with a value that has appreciated is said to be “above water”

What does it mean to capitalize accrued interest?

July 7, 2024 No Comments

A: When a company capitalizes accrued interest, it adds up the total amount of interest owed since the last debt payment made and adds the amount to the cost of the long-term asset or loan balance. There are two components to capitalizing accrued interest: Accrued

What are the main differences between single step and multiple step income statements?

July 7, 2024 No Comments

A: An income statement is a financial summary of a company’s financial operations over a set period of time. However, not all companies have the same reporting requirements for their respective income statements. Smaller companies that have simple structures can get away with single-step income

What are the main income statement ratios?

July 7, 2024 No Comments

A: The following financial ratios are derived from common income statements and used to compare different companies within the same industry. There are other ratios that are gleaned from an income statement, though the ones below represent some of the most common. Gross Margin Gross

What are the minimum margin requirements for a short sale account?

July 7, 2024 No Comments

A: In a short sale transaction, the investor borrows shares and sells them on the market in the hope that the share price will decrease and he or she will be able to buy them back at a lower price. The proceeds of the sale

What are the most common leverage ratios for evaluating a company?

July 7, 2024 No Comments

A: One of the most important steps in evaluating any given firm, for both investors and lenders, is to analyze debt obligations. Debt is neither fundamentally harmful nor beneficial, and many businesses borrow through standard loans or by issuing bonds. In fact, since the interest

What are the most important steps in the accounting cycle?

July 7, 2024 No Comments

A: All eight steps in the accounting cycle are important, since each step is necessary to complete the full accounting cycle accurately. The eight steps in the accounting cycle, in order, are: transactions, journal entries, posting, trial balance, worksheet, adjusting journal entries, financial statements and

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