What is the Market Value of Debt? The Market Value of Debt refers to the market price investors would be willing to buy a company’s debt for, which differs from the book value on the balance sheet. A company’s debt doesn’t always come in the form of publicly traded bonds, which have a specified market…
Financial Analysis Ratios Glossary Below is a glossary of terms and definitions for the most common financial analysis ratios terms. When calculating financial ratios using vertical and horizontal analysis, and ultimately the pyramid of ratios, it’s important to have a solid understanding of basic terms. The below information is taken from CFI’s Financial Analysis Fundamentals…
What is a Rights Issue? A rights issue is an offering of rights to the existing shareholders of a company that gives them an opportunity to buy additional shares directly from the company at a discounted price rather than buying them in the secondary market. The number of additional shares that can be bought depends…
Financial Math Glossary This financial math glossary covers the most important terms and definitions required for a career as a financial analyst. This list is taken from CFI’s Financial Mathematics Course. Annuity An annuity is a series of payments in equal time periods, guaranteed for a fixed number of years. Annuity factor The present value…
What is Dry Powder? Dry powder refers to cash reserves that corporations and private equity funds have available to deploy when an attractive investment opportunity arises, or to weather a downturn. The cash reserves give their holders an advantage over other firms that do not keep reserves since they can be used to capitalize on…
What is Unitranche Debt? A Unitranche Debt is a hybrid loan structure that combines senior and subordinated debt into one debt instrument. The borrower of this type of loan pays a blended interest rate that falls between the rate of the senior debt and subordinated debt. Unitranche debts started in the United States in 2005…
Anchoring bias Relying on the first piece of information that’s encountered as a reference point (or anchor). Confirmation bias Our natural tendency is to listen to people who agree with us. It feels good to hear our own opinions reflected back to us. CRT test Cognitive reflection task test Framing bias Judging information by how it…
What is Capital Structure? Capital structure refers to the amount of debt and/or equity employed by a firm to fund its operations and finance its assets. A firm’s capital structure is typically expressed as a debt-to-equity or debt-to-capital ratio. Debt and equity capital are used to fund a business’s operations, capital expenditures, acquisitions, and other…
What are Debt Covenants? Debt covenants are restrictions that lenders (creditors, debt holders, investors) put on lending agreements to limit the actions of the borrower (debtor). In other words, debt covenants are agreements between a company and its lenders that the company will operate within certain rules set by the lenders. They are also called…
