What is Financial Leverage? Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the provider of the debt will put a limit on how much risk it is…
What is Interest Coverage Ratio (ICR)? The Interest Coverage Ratio (ICR) is a financial ratio that is used to determine how well a company can pay the interest on its outstanding debts. The ICR is commonly used by lenders, creditors, and investors to determine the riskiness of lending capital to a company. The interest coverage…
What is Loan Structure? Loan structure refers to the different characteristics that a lender can choose from when extending credit to a borrower. Loan structure is also often referred to as credit structure. Lenders always want to offer their borrower credit that is appropriate based upon the nature of the credit request as well as…
What are Financial vs Non-Financial Covenants? Comparing financial vs non-financial covenants in a loan agreement helps us to better understand how agreements are formulated and the way they are executed across various industries. Covenants are a type of promise that exists in contract law and are a part of many borrowing agreements throughout corporate and…
What is the Long-Term Capital Investment Cycle? The long-term capital investment cycle occurs when the large capital assets of a company go through the entire duration of their lifespan. Capital investments are usually a sizable investment in dollar value, as well as sometimes even in physical size. The long-term capital investment cycle contains many smaller…
What is an Earned Premium? An earned premium represents premiums earned on the portion of an insurance contract that has expired. The premiums associated with the active portion of an insurance contract are considered unearned, as the insurance company is still taking on a risk in order to generate the premiums. Understanding Earned Premium When…
What is a One-time Charge? A one-time charge, or non-recurring item, is a line item that is reported on the financial statements of a firm on an irregular basis. It is unrelated to a firm’s normal business operations and arises from unexpected events like lawsuits, layoffs, asset sales, etc. It is important to recognize and…
What are Operating Expenses? Operating expenses, operating expenditures, or “opex,” refers to the costs incurred by a business for its operational activities. In other words, operating expenses are the costs that a company must make to perform its operational activities. Operating expenses are essential for analyzing a company’s operational performance. It is therefore important for…
What is an Order Book? An order book is a list of orders that presents different offers from buyers and sellers for a specific security. It shows the prices and volumes that people in the market are willing to buy and sell the security for. Order books were originally used in stock exchanges but are…
What is an Ascending Channel? An ascending channel occurs when visually analyzing an overall uptrend in the asset price of a stock, bond, or other such investment. It is a method of technical analysis where the bottom line is described as the trendline “support” and the top line is called the “resistance.” Resistance occurs at…
