What is the Acid-Test Ratio? The Acid-Test Ratio, also known as the quick ratio, is a liquidity ratio that measures how sufficient a company’s short-term assets are to cover its current liabilities. In other words, the acid-test ratio is a measure of how well a company can satisfy its short-term (current) financial obligations. This guide will break…
What is the Fixed-Charge Coverage Ratio (FCCR)? The Fixed Charge Coverage Ratio (FCCR) compares the company’s ability to generate sufficient cash flow to meet its fixed charge obligations, such as the required principal and interest payments on debt. It may include leases and other fixed charges. It is an important financial ratio, and when it…
What is the Debt to Asset Ratio? The debt to asset ratio is a financial metric used to help understand the degree to which a company’s operations are funded by debt. It is one of many leverage ratios that may be used to understand a company’s capital structure. The debt to asset ratio is calculated…
What is the IPO Process? The Initial Public Offering IPO Process is where a previously unlisted company sells new or existing securities and offers them to the public for the first time. Prior to an IPO, a company is considered to be private – with a smaller number of shareholders, limited to accredited investors (like angel investors/venture capitalists and…
What is an Intercreditor Agreement? An Intercreditor Agreement documents the rights and obligations of two or more creditors when working with a shared borrower; these include priority of claims on loans and collateral. By coordinating their mutual (and competing) interests in advance, the Agreement governs their relationship with each other and the borrower, providing legal…
What is Financial Leverage? Financial leverage is the use of borrowed money to increase the capital a company can use for operations or to purchase assets. The goal of financial leverage is to earn a higher return on those investments than the cost of borrowing. When financial leverage works as intended, it can amplify a…
What is the 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…
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 borrowers 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…
