What is a Hurdle Rate? A hurdle rate, which is also known as the minimum acceptable rate of return (MARR), is the minimum required rate of return or target rate that investors are expecting to receive on an investment. The hurdle rate is determined by assessing the cost of capital, risks involved, current opportunities in…
What is a Spin-Off? A corporate spin-off is an operational strategy used by a company to create a new business subsidiary from its parent company. A spin-off occurs when a parent corporation separates part of its business operations into a second publicly traded entity and distributes shares of the new entity to its current shareholders….
Overview of Revolving Debt A revolving debt (a “revolver,” also sometimes known as a line of credit, or LOC) does not feature fixed monthly payments. It differs from a fixed payment or term loan that has a guaranteed balance and payment structure. Instead, the payments of revolving debt are based on the balance of credit…
What is Contribution Analysis? Contribution analysis is used in estimating how direct and variable costs of a product affect the net income of a company. It addresses the issue of identifying simple or overhead costs related to several production projects. Contribution analysis aids a company in evaluating how individual business lines or products are performing…
What is a Management Buyout (MBO)? A management buyout (MBO) is a corporate finance transaction where the management team of an operating company acquires the business by borrowing money to buy out the current owner(s). An MBO transaction is a type of leveraged buyout (LBO) and can sometimes be referred to as a leveraged management…
What is Cash Earnings per Share (Cash EPS)? Cash earnings per share (cash EPS) is the operating cash flow generated by a company divided by the number of shares outstanding. Cash earnings per share (Cash EPS) is different from traditional earnings per share (EPS), which takes the company’s net income and divides it by the number…
What is Treasury Stock? Treasury stock, or reacquired stock, is the previously issued, outstanding shares of stock which a company repurchased or bought back from shareholders. The reacquired shares are then held by the company for its own disposition. They can either remain in the company’s possession to be sold in the future, or the…
What is Fixed Asset Turnover? Fixed Asset Turnover (FAT) is an efficiency ratio that indicates how well or efficiently a business uses fixed assets to generate sales. This ratio divides net sales by net fixed assets, calculated over an annual period. The net fixed assets include the amount of property, plant, and equipment, less the…
