What is Financing? Financing refers to the methods and types of funding a business uses to sustain and grow its operations. It consists of debt and equity capital, which are used to carry out capital investments, make acquisitions, and generally support the business. This guide will explore how managers and professionals in the industry think…
What is Default Risk? Default risk, also called default probability, is the probability that a borrower fails to make full and timely payments of principal and interest, according to the terms of the debt security involved. Together with loss severity, default risk is one of the two components of credit risk. Assessing Default Risk While…
What is Growth Capex? Growth capex is a form of capital expenditure undertaken by a company to expand existing operations or further growth prospects. It focuses on activities such as the acquisition of fixed assets, purchase of hardware (e.g., computers), vehicles for transporting goods, and building expansion. Usually, transactions relating to growth capex are recorded…
What is an Annuity? An annuity is a financial product that provides certain cash flows at equal time intervals. Annuities are created by financial institutions, primarily life insurance companies, to provide regular income to a client. An annuity is a reasonable alternative to some other investments as a source of income since it provides guaranteed…
What is Quantitative Finance? Quantitative finance is the use of mathematical models and extremely large datasets to analyze financial markets and securities. Common examples include (1) the pricing of derivative securities such as options, and (2) risk management, especially as it relates to portfolio management applications. Professionals who work in this field are often referred…
What is Commercial Paper? Commercial paper refers to a short-term, unsecured debt obligation that is issued by financial institutions and large corporations as an alternative to costlier methods of funding. It is a money market instrument that generally comes with a maturity of up to 270 days. Commercial paper is sold at a discount to…
What is Bad Debt Expense? Bad debt expense is the way businesses account for a receivable account that will not be paid. Bad debt arises when a customer either cannot pay because of financial difficulties or chooses not to pay due to a disagreement over the product or service they were sold. How to Report…
What are Agency Bonds? Agency bonds, also known as agency debt, is the debt issued by a government-sponsored enterprise (GSE) or a federal agency. The key difference between a GSE and a federal agency is that a GSE’s obligations are not guaranteed by the government, whereas a federal agency’s debt is backed up by a…
What is a Balanced Fund? A balanced fund, also known as a hybrid fund, is characterized by diversification among two or more asset classes. A balanced fund usually combines stock and bond components in a diversified portfolio. Balanced funds typically follow a 60% stock and 40% bond asset allocation, as seen below: Asset allocation in…
