What is the Market Risk Premium? The market risk premium is the additional return an investor will receive (or expects to receive) from holding a risky market portfolio instead of risk-free assets. The market risk premium is part of the Capital Asset Pricing Model (CAPM) which analysts and investors use to calculate the acceptable rate…
What is YoY? YoY stands for Year over Year and is a type of financial analysis that’s useful when comparing time series data. Analysts are able to deduce changes in the quantity or quality of certain business aspects with YoY analysis. In finance, investors usually compare the performance of financial instruments on a year-over-year basis…
What is the Difference Between EBIT and EBITDA? The difference between EBIT and EBITDA is that Depreciation and Amortization have been added back to Earnings in EBITDA, while they are not backed out of EBIT. This guide on EBIT vs EBITDA will explain everything you need to know! EBIT stands for: Earnings Before Interest and Taxes….
What is the Coupon Rate? The coupon rate is the amount of annual interest income paid to a bondholder, based on the face value of the bond. Government and non-government entities issue bonds to raise money to finance their operations. When a person buys a bond, the bond issuer promises to make periodic payments to…
What is a Floating Interest Rate? A floating interest rate refers to a variable interest rate that changes over the duration of the debt obligation. It is the opposite of a fixed interest rate, where the interest rate remains constant throughout the life of the debt. Loans, such as residential mortgages, can be acquired at both…
What is an Interest Rate Swap? An interest rate swap (IRS) is a type of derivative contract through which two counterparties agree to exchange one stream of future interest payments for another, based on a specified principal amount. In most cases, interest rate swaps include the exchange of a fixed interest rate for a floating…
What is a Dutch Auction? A Dutch auction is a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity. Alternatively, a Dutch auction is known as a descending price auction or a uniform…
What are Agency Costs? Agency costs are internal costs incurred due to the competing interests of shareholders (principals) and the management team (agents). Expenses that are associated with resolving this disagreement and managing the relationship are referred to as agency costs. The key takeaway point is that these costs arise from the separation of ownership…
What is Return on Investment (ROI)? Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or to compare the relative efficiency of different investments. ROI measures the return on an investment relative to the cost of the investment. The Return on Investment (ROI) formula: Where “Gain from Investment”…
What is Cost Structure? Cost structure refers to the various types of expenses a business incurs and is typically composed of fixed and variable costs. Costs may also be divided into direct and indirect costs. Fixed costs are costs that remain unchanged regardless of the amount of output a company produces, while variable costs change with production…
