Found 1748 Articles for Growth & Empowerment

In complete contract method, recognize all the revenue and profit associated with a project only after completion of project. This method results in deferred tax liability.Also, this method is used, where there is uncertainty in collecting funds from customers under contract terms.Businesses can defer recognition of income taxes, if there is any delay in income recognition. Deferment of tax and payments and their benefits can have a positive or negative effect on working capital.Revenue recognition timing is delayed and irregular. In this method, bills issued and costs incurred are recorded in the balance sheet and the respective amounts are transferred ... Read More

Free cash flow to firm (FCFF) represents the available cash flow for equity holders of the firm. The cash is the remaining cash after paying all its expenses including both operating and capital expenditures (taxes, interest, expenditures etc.). Measures the cash return by a firm to its shareholders.FormulaThe formulae to calculate the FCFE is as follows −Free cash flow of equityCash (operations) – capital expenditures + net debt (repaid)Free cash flow of equity (with net income)Net income + D&A + changes in working capital + capital expenditures + net borrowingsFree cash flow of equity (with EBIT)EBIT – I – T ... Read More

Free cash flow to firm (FCFF) represents the available cash flow for both debt and equity holders of the firm. The cash is remaining cash after paying all its expenses including both operating and capital expenditures (taxes, interest, expenditures etc.).FCFF is calculated by intrinsic valuation method and terminal value of business.FormulaeThe formulae to calculate the FCFF are as follows − Free cash flow of firm (Net profit)Net profit (operating) + expenses (Depreciation and amortization) – capital expenditure – changes in net working capital. Free cash flow of firm (Operations)Cash flow (operations) + Interest expenses* (1-T) – capital expenditures Free cash flow of firm ... Read More

The performance ratios help in understanding the financial statements and give a better view of business.Company calculates these ratios regularly to see how well they are using their own resources and gives their performance.Some of the advantages of performance ratios for a company are forecasting, budget estimation and determination of the firm’s liquidity and long term solvency.Some of the disadvantages are it is more complicated and comparison becomes ambiguous because companies mostly work in different environments, market, regulation etc.Performance ratiosThe various performance ratios in company are as follows−Cash flow to revenue (CFr) = Ratio between cash flows generated (CFg) from ... Read More

Let us understand what free cash flow to firm (FCFF) and free cash flow to equity are, before learning about their differences.Free cash flow to firm (FCFF)Free cash flow is an integral measurement tool which is used in management accounting. This allows business members to monitor and measure the values of their business to avoid failure and to expand their business by keeping features needs in mind.In simple words, free cash flow is the leftover money in the firm after deducting all the expenses like debts, expenses, rent etc. It also indicates the health of the company. By free cash ... Read More

Call option is the contract in which, buyer has a right to buy shares of number at strike price before an expiry date.In this, the buyer has no right for an obligation.In this option, premium is paid for risk associated with an obligation.These are purchased mainly for speculation and are sold for income purposes.If the security price is more than the purchase price then, an option is profitable (buying the stock at a lower price than market value).If the security price is lower than the purchase price, then the option is not profitable.TypesThe types of call option contract are as ... Read More

Put option is the contract in which the holder has a right to sell equity shares of number at strike price before an expiry date.Put option is available in stocks, indexes, commodities and currencies.Price change is impacted by underlying assets, time decay, interest rates, and strike price. If there is decline in interest rate and increase in underlying asset, then value of put option increases.If there is decrease in interest rates, underlying assets and nearing expiry dates, then value of put option decreases.If the option expires is profitable then, it will exercise and if option expiry is unprofitable, then the ... Read More

Let us learn about the depression and recession before understanding the differences between them.DepressionDepression is a more prolonged and severe form of recession. According to the IMF, if the GDP declines over 10% then it is considered as depression. Depression is always borne out of recession and debate continues when it will end, some say it will end when the economy starts to grow again and some say it will end output returns to pre-crisis level.Some of the greatest depressions are mentioned below −Worst downturn was recorded in 1929 and lasted for 10 years leaving a deep scar on the ... Read More

Inflation and deflation are burning issues which almost every country experienced. In simple words inflation is an increase in price of goods and services and decrease in purchasing power. Deflation is where decrease in price of goods and services and increase in purchasing power.InflationThis situation occurs due to variability in demand and supply of money. This results over time, the price of goods and services increases. Example is the rise in gold price due to the fall in money value.Due to inflation the common man has spent more money purchasing goods and services because the general price will have upward ... Read More

Let us learn about the exchange traded derivatives and over the counter (OTC) before understanding the differences between them.Exchange traded derivativesWith a standardized contract, exchanged traded derivatives consist of options and futures mostly and traded on public exchanges. Determines expiry date, settlement process, lot size and states underlying instruments on which derivatives are created. By providing market based pricing information these derivatives promote transparency and liquidity.TypesStock derivatives − Commonly traded asset class are common stockIndex derivatives − Instead of simply future of a particular stock, these derivatives are sold to investors who like to buy/sell an entire exchangeCurrency derivatives − ... Read More