What is Operating Return on Assets (OROA)? Operating return on assets (OROA), an efficiency or profitability ratio, is a variation of the traditional return on assets ratio. Operating return on assets is used to show a company’s operating income that is generated per dollar invested specifically in its assets that are used in its everyday…
What is Revenue Per Employee? Revenue per employee is an efficiency ratio used to determine the revenue generated per individual working at a company. The revenue per employee ratio is important for determining the efficiency and productivity of the average employee of a company. Formula for Revenue Per Employee The formula for the ratio is…
What is Recovery Rate? Recovery rate, commonly used in credit risk management, refers to the amount recovered when a loan defaults. In other words, the recovery rate is the amount, expressed as a percentage, recovered from a loan when the borrower is unable to settle the full outstanding amount. A higher rate is always desirable….
What is the Stable Dividend Policy? A business with a stable dividend policy pays out a steady dividend every given period, regardless of the volatility in the market. The exact amount of dividends that are paid out depends on the long-term earnings of the company. The dividend’s growth is in line with the company’s long-term…
What is a Cumulative Dividend? A cumulative dividend is a required fixed distribution of earnings made to shareholders. Preferred shares are the most common type of share class that provides the right to receive cumulative dividends. If a company is unable to distribute dividends to shareholders in the period owed, the dividends owed are carried…
What is the Pecking Order Theory? The Pecking Order Theory, also known as the Pecking Order Model, relates to a company’s capital structure. Made popular by Stewart Myers and Nicolas Majluf in 1984, the theory states that managers follow a hierarchy when considering sources of financing. The Pecking Order Theory states that managers display the…
What is a Credit Rating? A credit rating is an opinion of a particular credit agency regarding the ability and willingness an entity (government, business, or individual) to fulfill its financial obligations in completeness and within the established due dates. A credit rating also signifies the likelihood a debtor will default. It is also representative…
What are the Important Dividend Dates? In order to understand dividend-paying stocks, knowledge of important dividend dates is crucial. A dividend typically comes in the form of a cash distribution that is paid from the company’s earnings to investors. Instead of reinvesting cash back into the business, a company may choose to transfer value to…
What is Ratio Analysis? Ratio analysis refers to the analysis of various pieces of financial information in the financial statements of a business. They are mainly used by external analysts to determine various aspects of a business, such as its profitability, liquidity, and solvency. Analysts rely on current and past financial statements to obtain data…
