Definition of WACC A firm’s Weighted Average Cost of Capital (WACC) represents its blended cost of capital across all sources, including common shares, preferred shares, and debt. The cost of each type of capital is weighted by its percentage of total capital and then are all added together. This guide will provide a detailed breakdown of…
What is EBITDA? EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is a metric used to evaluate a company’s operating performance. It can be seen as a loose proxy for cash flow from the entire company’s operations. The EBITDA metric is a variation of operating income (EBIT) that excludes certain non-cash expenses….
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…
