What is the Herfindahl-Hirschman Index (HHI)? The Herfindahl-Hirschman Index is an index that measures the market concentration of an industry. A highly concentrated industry is one where only a few players in the industry hold a large percentage of the market share, leading to a near-monopolistic situation. A low degree of concentration means that the industry is…
What is the Cash Flow to Debt Ratio? The cash flow to debt ratio is a coverage ratio that compares the cash flow that a business generates to its total debt. The cash flow most commonly used to calculate the ratio is the cash flow from operations, although using unlevered free cash flow is also a viable…
What are Leverage Effect Measures? Leverage effect measures aim to quantify how much business risk a given company is currently experiencing. Business risk refers to the revenue variance that a business can expect to see, and how sensitive net income is to changes in revenues. Leverage effect measures aim to show how the business’ fixed…
What is Return on Common Equity? The Return on Common Equity (ROCE) ratio refers to the return that common equity investors receive on their investment. ROCE is different from Return on Equity (ROE) in that it isolates the return that the company sees on its common equity, rather than measuring the total returns that the…
What is the Defensive Interval Ratio? The defensive interval ratio (DIR) is a financial liquidity ratio that indicates how many days a company can operate without needing to tap into capital sources other than its current assets. It is also known as the basic defense interval ratio (BDIR) or the defensive interval period ratio (DIPR)….
What is a Futures Contract? A futures contract is an agreement to buy or sell an underlying asset at a later date for a predetermined price. It’s also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at…
What is the Pretax Margin Ratio? The Pretax Margin Ratio, also knows at the Earnings Before Tax (EBT) ratio, is an operating profitability ratio used by market analysts and investors. This ratio is useful in analyzing the standalone profitability of a company’s operations, as it excludes tax expense. The pretax margin ratio is also useful…
What is an Initial Outlay? An initial outlay refers to the initial investments needed in order to begin a given project. For instance, if opening a new factory, a company would need to purchase new land and machinery in order to get the project going. Usually, a company’s management will base their decision to pursue…
What is Yield (Definition)? Yield is defined as an income-only return on investment (it excludes capital gains) calculated by taking dividends, coupons, or net income and dividing them by the value of the investment, expressed as an annual percentage. Yield tells investors how much income they will earn each year relative to the market value…
What is Restricted Stock? A restricted stock award (RSA) refers to an award of stock to a person who is subject to conditions that must be met before the stockholder has the right to transfer or sell the stock. It is commonly issued to incentivize corporate officers such as directors and senior executives. Some of…
