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The financing policies of a company usually need to be sustainable and feasible in the long term. Companies want to make decisions that may make financial policies more feasible and sustainable. The measures opted for this must ensure that the growth of the company is in sync with the policies set by the company. The policies that need to be followed for sustainable growth are included in the sustainable growth model of a company.Assumptions of Sustainable Growth ModelThe sustainable growth model aims to achieve long-term financial goals by managing the different elements of the model. The sustainable growth model is ... Read More
Capital Cash Flow (CCF) is a unique approach to calculate the worth of an investment project. In deciding the value of a project, there are two scenarios in which the CCF approach may be calculated. While there are some basic differences in these two approaches, the result obtained using these approaches are the same. These two scenarios are: fixed debt and fixed debt-to-value ratio.The CCF method differs from the Free Cash Flow (FCF) method in the sense that in FCF, the interest tax shield is applied in the discount rate rather than on the cash flows of the firm. The ... Read More
Apart from Earning Per Share (EPS), value, and cash flow, there are additional factors that need to be considered while determining the capital structure of a company. Some of the most common factors are as follows −AssetsIf a company has more tangible assets, its chances of financial distress automatically goes down. Lenders can use the tangible assets to realize their funds by liquidating the assets in the case the company goes bankrupt. Hence, companies that do not have many tangible assets have debt at a costlier rate.Growth OpportunitiesThe companies with higher market-to-book value have a larger share of intangible assets ... Read More
Financial Slack is the Unused Debt CapacityBusinesses go through various conditions in their lifetime. There are times when companies earn high income which can be termed as profits or growth of revenues. On the other hand, some companies may go through a downturn in sales, profits, or revenues. In order to sail through such conditions, a company must have extra money. This extra money that can be used when the company is in trouble is known as the financial slack of the company.Financial slack is the untapped debt potential of a company. It may be availed from unused debt capacity, ... Read More
Financing effects are special kinds of considerations made for the companies or individuals who are weaker in terms of finances and may find it hard to obtain debt from the markets. The intention of financial effects is to help companies and individuals mitigate the financial burdens that may arise from time to time.Here are some prominent forms of financing effects.Subsidized LoansIn case of a subsidized loan, the lender pays the interest portion of the loan, reducing the burden of the borrower who may find it hard to pay back the interests on a loan taken for a certain reason, such ... Read More
Risk-free Debt is HypotheticalRisk-free debt is a hypothetical condition where the risk associated with the debt is zero. In general, there is no such thing as risk-free debt. While the risk of debt may go up and down in comparison, it can never be zero in any condition. This is apparent from the government bonds which carry minimum risk but not risk-free.Even when a collateral is issued against the debt resourced, the debt does not become risk-free. Investors should be aware that the company may be unable to provide the debt back in case of bankruptcy.It is notable that the ... Read More
The Free Cash Flow of a company depends on the following factors −Sales ProjectionExpense EstimationDepreciationCapital ExpenditureChanges in Net Working CapitalInterest ExpensesTax RatesInflationLet us discuss each of these factors in detail and see how they affect the Free Cash Flows of a company.Sales ProjectionTo determine the Free Cash Flow of a company, the first step is to determine its projected sales.Sales depend upon many factors, such as market share, growth, and demand of products in the market.A company cannot remain at one stage in terms of sales. There are normal, super-normal, and declining growth phases of a company.An analyst dealing with ... Read More
Debt rebalancing is a process of rebalancing the debt while calculating the Weighted Average Cost of Capital (WACC). The concept of WACC is based on the assumption that WACC remains constant throughout the lifetime of a project. It also depends on the fact that debt proportionality remains the same over the course of years of a project.As WACC remains constant throughout the lifetime of a project, the debt will go down each year according to WACC.As WACC remains constant over the years, to keep the debt proportionality constant, debt has to be rebalanced to keep the WACC constant.This change in ... Read More
Autocorrelation FunctionThe autocorrelation function defines the measure of similarity or coherence between a signal and its time delayed version. The autocorrelation function of a real energy signal $\mathit{x}\mathrm{(\mathit{t})}$ is given by, $$\mathit{R}\mathrm{(\mathit{\tau})} \:\mathrm{=}\: \int_{-\infty}^{\infty}\mathit{x\mathrm(\mathit{t})}\:\mathit{x}\mathrm{(\mathit{t-\tau})}\:\mathit{dt}$$Energy Spectral Density (ESD) FunctionThe distribution of the energy of a signal in the frequency domain is called the energy spectral density.The ESD function of a signal is given by, $$\mathit{\psi}\mathrm{(\mathit{\omega})}\: \mathrm{=}\: \mathrm{|\mathit{X}\mathrm{(\mathit{\omega})}|}^\mathrm{2} \:\mathrm{=}\: \mathit{X}\mathrm{(\mathit{\omega})} \mathit{X}\mathrm{(\mathit{-\omega})}$$Autocorrelation TheoremStatement − The autocorrelation theorem states that the autocorrelation function $\mathit{R}\mathrm{(\mathrm{\tau})}$ and the ESD (Energy Spectral Density) function $\mathit{\psi}\mathrm{(\mathit{\omega})}$ of an energy signal $\mathit{x}\mathrm{(\mathit{t})}$ form a Fourier transform pair, i.e., $$\mathit{R}\mathrm{(\mathit{\tau})} ... Read More
To compute the condition number of a matrix with respect to a matrix norm, we could apply torch.linalg.cond() method. It returns a new tensor with computed condition number. It accepts a matrix, a batch of matrices and also batches of matrices. A matrix is a 2D torch Tensor. It supports input of float, double, cfloat, and cdouble data typesSyntaxtorch.linalg.cond(M, p=None)ParametersM – A matrix or batch of matrices.p – A type of matrix norm to be used in computation of condition number. Default matrix norm is 2-norm.It returns a real-valued tensor of condition number.StepsWe could use the following steps to compute the ... Read More