Debt vs Equity Financing: Which is Best? Debt vs Equity Financing – which is best for your business and why? The simple answer is that it depends. The equity versus debt decision relies on a large number of factors, such as the current economic climate, the business’ existing capital structure, and the business life cycle…
What is the Fama-French Three-factor Model? The Fama-French Three-factor Model is an extension of the Capital Asset Pricing Model (CAPM). The Fama-French model aims to describe stock returns through three factors: (1) market risk, (2) the outperformance of small-cap companies relative to large-cap companies, and (3) the outperformance of high book-to-market value companies versus low…
What is Gearing? Gearing is the amount of debt, in proportion to equity capital, that a company uses to fund its operations. A company that possesses a high gearing ratio shows a high debt to equity ratio, which potentially increases the risk of financial failure of the business. Gearing serves as a measure of the extent to…
What is the Hockey Stick Effect? The hockey stick effect is characterized by a sharp rise or fall of data points after a long flat period. It is illustrated using the graphical shape of a line chart that resembles a hockey stick. The hockey stick chart formation illustrates that urgent action may be required to…
What is a Financial Intermediary? A financial intermediary refers to an institution that acts as a middleman between two parties in order to facilitate a financial transaction. The institutions that are commonly referred to as financial intermediaries include commercial banks, investment banks, mutual funds, and pension funds. They reallocate uninvested capital to productive sectors of…
What is the Net Debt-to-EBITDA Ratio? Net debt-to-EBITDA is a leverage ratio that compares a company’s liabilities in the form of net debt to its “cash flow,” in the form of EBITDA (stands for earnings before interest, taxes, depreciation and amortization). Credit rating agencies and creditors rely on cash flows to measure the financial health…
What is Cash Ratio? The cash ratio, sometimes referred to as the cash asset ratio, is a liquidity metric that indicates a company’s capacity to pay off short-term debt obligations with its cash and cash equivalents. Compared to other liquidity ratios such as the current ratio and quick ratio, the cash ratio is a stricter, more conservative…
