What is Value Added? Value added is the extra value created over and above the original value of something. It can apply to products, services, companies, management, and other areas of business. In other words, it is an enhancement made by a company/individual to a product or service before offering it for sale to the…
What is Perpetuity? Perpetuity in the financial system is a situation where a stream of cash flow payments continues indefinitely or is an annuity that has no end. In valuation analysis, perpetuities are used to find the present value of a company’s future projected cash flow stream and the company’s terminal value. Essentially, a perpetuity…
What is Yield Gap? The Yield Gap is the difference between the yields of government-issued securities and the average dividend yield on stock shares. In other words, the yield gap, or the yield gap ratio, is the ratio of the dividend yield on equity compared to the yield on long-term government bonds. The yield gap…
What is Return on Capital Employed (ROCE)? Return on Capital Employed (ROCE), a profitability ratio, measures how efficiently a company is using its capital to generate profits. The return on capital employed metric is considered one of the best profitability ratios and is commonly used by investors to determine whether a company is suitable to…
What is the Beta Coefficient? The Beta coefficient is a measure of the sensitivity or correlation of a security or an investment portfolio to movements in the overall market. We can derive a statistical measure of risk by comparing the returns of an individual security/portfolio to the returns of the overall market and identifying the…
What is Return on Invested Capital? Return on Invested Capital is a profitability or performance measure of the return earned by those who provide capital, namely the firm’s bondholders and stockholders. Return on Invested Capital (ROIC) can be defined as follows: Where: There are three key insights to be gained from this definition: We use…
What is Equity? In finance and accounting, equity is the value attributable to the owners of a business. The book value of equity is calculated as the difference between assets and liabilities on the company’s balance sheet, while the market value of equity is based on the current share price (if public) or a value…
What is the Glass-Steagall Act? The Glass-Steagall Act, also known as the Banking Act of 1933, is a piece of legislation that separated investment and commercial banking. It was sponsored by two members of the US Congress, Senator Carter Glass and Representative Henry Steagall. Members of the House of Representatives passed the bill on May…
What is the Dodd-Frank Act? The Dodd-Frank Act, or the Wall Street Reform and Consumer Protection Act of 2010, was enacted into law during the Obama administration as a response to the financial crisis of 2008. It was named after its sponsors, US Senator Christopher Dodd and US Representative Barney Frank. The Dodd-Frank Act sought…
