What is CAPM? The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. Below…
What is Return on Equity (ROE)? Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage (e.g., 12%). Alternatively, ROE can also be derived by dividing the firm’s dividend growth rate by its earnings retention rate (1 –…
What is SWORD Financing? Stock and Warrant Off-Balance R&D (SWORD) financing is a special type of financing developed particularly for biotechnology companies. The main goal of SWORD financing is to subsidize a company’s biotech R&D activities. Research and development activities are essential to the success of a biotechnology company. However, R&D activities come with a…
What is Pro-Rata Right? Pro-rata right is a legal term that describes the right, but not the obligation, that can be given to an investor to maintain their initial level of percentage ownership in a company during subsequent rounds of financing. In other words, if an investor with a pro-rata right initially acquired a 10%…
What is Venture Debt? Venture debt is a type of debt financing obtained by early stage companies and startups. This type of debt financing is typically used as a complementary method to equity financing. Venture debt can be provided by both banks specializing in venture lending and non-bank lenders. Venture debt is frequently used as…
What is a Bullet Bond Portfolio? A bullet bond portfolio, commonly referred to as a bullet portfolio, is made up of a range of bullet bonds, from short-term to long-term bullet bonds. A bullet bond is a non-callable bond wherein the total principal amount or its total value is paid in a lump sum on…
What is a Laddered Bond Portfolio? A laddered bond portfolio is an investment portfolio strategy that is composed of fixed income securities with different maturity dates. It is also referred to as a “bond ladder” portfolio. Why use a Bond Ladder? A bond ladder allows an investor to mitigate risks through diversification. It comes with…
What is a Barbell Bond Portfolio? A barbell bond portfolio is an investment portfolio that comprises both short-term and long-term bonds wherein one half of the portfolio consists of short-term bonds and the other half consists of long-term bonds. The investment portfolio is called the barbell bond portfolio because it can be graphically described using…
What is a Fixed Income Portfolio? A fixed income portfolio comprises investment securities that pay a fixed interest until their maturity date. Upon maturity, the principal amount of the security is paid back to the investor. Some examples of fixed income securities are: Certificates of deposit (CDs) Government-issued bonds Corporate-issued bonds Treasury bills Bond mutual…
What is Variable Overhead Spending Variance? Spending variance is a term used to describe the difference between the real amount associated with a certain expense and the expected amount associated with the same expense. It is the relation of the budgeted costs as calculated by the cost accountants of a company versus the real cost….
