Lehman Brothers – A Fall from Grace Lehman Brothers’ stock was selling at $86 a share in February 2007, giving the company a market capitalization of nearly $60 billion. For the year, the company reported a new record high in net income, over $4 billion. In January 2008, Lehman Brothers was the fourth-largest investment bank…
What is Funding Liquidity Risk? Funding liquidity risk refers to the risk that a company will not be able to meet its short-term financial obligations when due. In other words, funding liquidity risk is the risk that a company will not be able to settle its current outstanding bills. Understanding Liquidity Liquidity is defined as…
What are Carry Benefits? Carry benefits is the term used to describe a situation where the benefits gained from holding an asset – such as interest payments or dividends – exceed the costs associated with holding on to the asset, such as storage or financing costs. It is the exact opposite of cost of carry,…
What is Basel I? Basel I refers to a set of international banking regulations created by the Basel Committee on Bank Supervision (BCBS), which is based in Basel, Switzerland. The committee defines the minimum capital requirements for financial institutions, with the primary goal of minimizing credit risk. Basel I is the first set of regulations…
What is Loan Servicing? Loan servicing is the way a finance company (a lender) goes about collecting principal, interest, and escrow payments that are due or overdue. The practice deals with all types of loans; however, mortgages are the most common. Mortgages are frequently backed by the government or an affiliated agency (a government-sponsored entity…
What is an Annual Credit Review? An annual credit review is a review process that lenders conduct on current accounts with outstanding credit. Creditors, such as banks, credit bureaus, and financial services companies conduct assessments on both individual and corporate customers to assess their risk level and their ability to continually honor outstanding credit obligations….
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…
