What is Risk? In finance, risk is the probability that actual results will differ from expected results. In the Capital Asset Pricing Model (CAPM), risk is defined as the volatility of returns. The concept of “risk and return” is that riskier assets should have higher expected returns to compensate investors for the higher volatility and…
What is an Earnings Call? An earnings call is a conference call (typically held in the form of a teleconference or a webcast) during which the management of a public company announces and discusses the financial results of a company for a quarter or a year. Generally, the earnings call is accompanied by an official…
What are Flotation Costs? Flotation costs are the costs that are incurred by a company when issuing new securities. The costs can be various expenses including, but not limited to, underwriting, legal, registration, and audit fees. Flotation expenses are expressed as a percentage of the issue price. After the flotation costs are determined by a…
What is the Yield to Maturity (YTM)? Yield to Maturity (YTM) – otherwise referred to as redemption or book yield – is the speculative rate of return or interest rate of a fixed-rate security, such as a bond. The YTM is based on the belief or understanding that an investor purchases the security at the…
What are CCPPO Shares? CCPPO (Cumulative, Convertible, Participating, Preferred-dividend Ordinary) shares are a rare type of equity shares issued by a company, which contain multiple features, including cumulative dividends, participation, convertibility into common shares, and a preferred-dividend feature. Understanding CCPPO Shares Essentially, CCPPO shares represent a combination of common and preferred shares. In the event…
What is Profit Before Tax (PBT)? Profit before tax (PBT) is a measure of a company’s profitability that looks at the profits made before any tax is paid. It matches all the company’s expenses, which include operating and interest expenses, against its revenues, but excludes the payment of income tax. A majority of entrepreneurs start…
What is Double Gearing? Double gearing refers to the practice of borrowing money against an asset, with the money being used to buy shares of stock. Then, more money is borrowed against the shares to establish a margin loan that can be used to purchase even more shares. In short, double gearing is a form…
What is a Credit Event? A credit event refers to a negative change in the credit standing of a borrower that triggers a contingent payment in a credit default swap (CDS). It occurs when an individual or organization defaults on its debt and is unable to comply with the terms of the contract entered, triggering…
What is a Constant Dividend Payout Ratio Policy? A constant dividend payout ratio policy is a dividend policy in which the percentage of earnings paid in the form of dividends is held constant. In other words, a constant dividend payout ratio policy maintains the same proportion of earnings paid out as dividends to shareholders. Dividend…
What is Budget Variance? Budget variance deals with a company’s accounting discrepancies. The term is most often used in conjunction with a negative scenario. An example is when a company fails to accurately budget for their expenses – either for a given project or for total quarterly or annual expenses. (The negative variance can also…
