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…
What is a Proxy Vote? A Proxy Vote is a delegation of voting authority to a representative on behalf of the original vote-holder. The party who receives the authority to vote is known as the Proxy and the original vote-holder is known as the Principal. The concept is important in financial markets and particularly with…
What is Margin of Safety? The margin of safety is the difference between the amount of expected profitability and the break-even point. The margin of safety formula is equal to current sales minus the breakeven point, divided by current sales. Understanding Margin of Safety There are two applications to define the margin of safety: 1….
