What is a DRIP (Dividend Reinvestment Plan)? A DRIP (Dividend Reinvestment Plan) allows investors to reinvest any dividend earnings they receive back into the stock of the company paying out the dividend. DRIPs give stock market investors who own shares in a particular company the opportunity to receive dividend payments either in the form of…
What is an Exit Multiple? An exit multiple is one of the methods used to calculate the terminal value in a discounted cash flow formula to value a business. The method assumes that the value of a business can be determined at the end of a projected period, based on the existing public market valuations…
What are Value Stocks? Value stocks are stocks that are currently trading at a price lower than their actual intrinsic price. It basically means that the stocks are undervalued, i.e., traded at a price lower than their true value, making them an attractive investment option for investors. The intrinsic value of a stock is its…
What are Financial Controls? Financial controls are the procedures, policies, and means by which an organization monitors and controls the direction, allocation, and usage of its financial resources. Financial controls are at the very core of resource management and operational efficiency in any organization. Required Processes Effective financial control policies should be implemented after a…
What is Market Value vs Investment Value? In finance, you frequently encounter the concepts of market value vs investment value. The two terms may seem synonymous, however, there are some critical differences between them. In this article, we look at each concept and discuss the key differences between them. Market value is the price that…
What are Defensive Industries? Defensive industries comprise businesses that are relatively stable or relatively immune to economic fluctuations, i.e., economic expansions and recessions. Defensive businesses remain relatively unaffected in the event of an economic boom or recession in the sense that their earnings are uninfluenced by the economic fluctuations. The industry usually consists of businesses…
What is Volume vs Liquidity? Investors need to differentiate between volume vs liquidity, as both terms are widely used in stock trading. Volume and liquidity are correlated; however, the two terms are also very different from each other. The term “volume” in trading refers to the total quantity or the total number of shares that…
What are Payment Processing Fees? Payment processing fees are the costs that business owners incur when processing payments from customers. The amount of payment fees charged to a merchant depends on various factors such as the level of risk of the transaction, the type of card (reward, business, corporate, etc.), and the pricing model preferred…
What is Prepayment Risk? Prepayment risk refers to the risk that the principal amount (or a portion of the principal amount) outstanding on a loan is prematurely paid back. In other words, prepayment risk is the risk of early repayment of a loan by a borrower. Understanding Prepayment Risk Prepayment risk may sound counter-intuitive in…
What is the Delinquency Rate? The delinquency rate refers to the percentage of loans that are past due. It indicates the quality of a lending company’s or a bank’s loan portfolio. Understanding the Delinquency Rate The delinquency rate is commonly used by analysts to determine the quality of the loan portfolio of lending companies or…
