What is the EV/Gross Profit Ratio? The EV/Gross Profit Ratio is a profitability financial ratio that estimates the enterprise value of a company to its gross profit. It demonstrates how many dollars of enterprise value are generated for every dollar of gross profit earned. Generally, the lower the ratio, the lower is the company’s net…
What is After Tax Operating Income (ATOI)? After tax operating income (ATOI) is a company’s operating income after all taxes are paid. The ATOI is not recognized by the GAAP as it excludes the after-tax benefits from accounting changes. Since it is not a part of GAAP, what is included and excluded in ATOI changes?…
What is Debtor vs. Creditor? The key difference between a debtor vs. creditor is that both concepts denote two counterparties in a lending arrangement. The distinction also results in a difference in financial reporting. On the company’s balance sheet, the company’s debtors are recorded as assets while the company’s creditors are recorded as liabilities. Note…
What is Wash Trading? Wash trading – also referred to as round trip trading – is an illegal practice where investors buy and sell the same financial instruments at the same time in order to manipulate the market. The practice can unnaturally increase the trading volume in order to make the security appear as though…
What is Constant Weight Asset Allocation? Constant weight asset allocation can be defined as a type of asset allocation approach in which rebalancing occurs automatically. Several mutual funds permit rebalancing when they are established. For example, if an investor holds a portfolio amounting to about 70% stock in the US and 20% stock on the…
What is an Institutional Buyout (IBO)? An institutional buyout (also known as IBO) is a type of acquisition (buyout) in which an institutional investor such as a venture capital firm, private equity firm, or a financial institution (e.g., bank) purchases a controlling interest (at least 51%) in a company. The institutional buyout is a common…
What is a Private Company? A private company is owned by either a small number of shareholders, company members, or a non-governmental organization, and it does not offer its stocks for sale to the general public. Instead, its stock is offered, owned, or exchanged privately among a small number of shareholders – or even held…
What is a Balanced Scorecard? A balanced scorecard is a strategic planning framework that companies use to assign priority to their products, projects, and services, communicate about their targets or goals, and plan their routine activities. The scorecard enables companies to monitor and measure the success of their strategies to determine how well they have…
What are Professional Corporations? A professional corporation is a corporation that comprises different types of professionals such as doctors, lawyers, architects, accountants, engineers, psychologists, etc. In most states, professionals who want to incorporate their practice can do so by forming a professional corporation or a professional service corporation. A professional service corporation is different from…
What are Public Companies? Public companies are entities that trade their stocks on the public exchange market. Investors can become shareholders in a public company by purchasing shares of the company’s stock. The company is considered public since any interested investor can purchase shares of the company in the public exchange to become equity owners….
