What is Seller’s Discretionary Earnings? Seller’s discretionary earnings is a cash-flow based measure of business earnings in an owner-operated business. It comprises the profit before tax and interest of a business before the owner’s benefits, non-cash expenses, extraordinary one-time investments, and other non-related business incomes and expenses. This metric is used to measure the value…
What is a Cross Guarantee? A cross guarantee refers to an arrangement between two or more related companies to provide a guarantee to each other’s obligations. Such a guarantee is commonly made among companies trading under the same group or between a parent company and its subsidiaries. A cross guarantee protects the company that incurred…
What are Cash Reserves? Cash reserves are funds that companies set aside for use in emergency situations. The cash that is saved is used to cover costs or expenses that are unplanned or unexpected. In most cases, the reserves are specifically for short-term needs. One benefit of maintaining such a reserve is that the company…
What is an Irrevocable Proxy? An irrevocable proxy is an enforceable power granted by the owner to another party to exercise his voting rights independently, without requiring his consent each time. Typically, most proxies are revocable, but some agreements may include specific clauses that require the proxy to be irrevocable for a specified period. The…
What is Peer-to-Peer (P2P) Lending? Peer-to-peer lending is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal. P2P lending is generally done through online platforms that match lenders with the potential borrowers. P2P lending offers both secured and unsecured loans. However,…
What is the Binomial Interest Rate Tree? The binomial interest rate tree is a graphical representation of possible interest rate values at different periods of time, under the assumption that at each time period, the interest rate may either increase or decrease with a certain probability. Essentially, the binomial interest rate tree is concerned with the…
What is Regression Analysis? Regression analysis is a set of statistical methods used for the estimation of relationships between a dependent variable and one or more independent variables. It can be utilized to assess the strength of the relationship between variables and for modeling the future relationship between them. Regression analysis includes several variations, such…
What is the CAPE Ratio? The CAPE Ratio (also known as the Shiller P/E or PE 10 Ratio) is an acronym for the Cyclically-Adjusted Price-to-Earnings Ratio. The ratio is calculated by dividing a company’s stock price by the average of the company’s earnings for the last ten years, adjusted for inflation. Financial Analysts use the Cyclically-Adjusted…
What is MiFID II? MiFID II is the revision of the Markets in Financial Instruments Directive (MiFID), originally published in 2004. It is the foundation of financial legislation for the European Union, designed to assist traders, investors, and other participants in the financial sector. The primary goal of MiFID II is to keep financial markets…
What is Sustainable Growth Rate? The sustainable growth rate is the rate of growth that a company can expect to see in the long term. Often referred to as G, the sustainable growth rate can be calculated by multiplying a company’s earnings retention rate by its return on equity. The growth rate can be calculated on…
