What is Absolute Valuation? Absolute valuation models calculate the present worth of businesses by forecasting their future income streams. The models use the information available in the financial statements and books of accounts of a company to arrive at its intrinsic or real worth. There are two types of absolute valuation models: Dividend Discount Model…
What are Held to Maturity Securities? Held to maturity securities are securities that companies purchase and intend to hold until they mature. They are unlike trading securities or available for sale securities, where companies don’t usually hold on to securities until they reach maturity. Companies mostly use held to maturity securities to protect themselves against…
What are Current Liabilities? Current liabilities are financial obligations of a business entity that are due and payable within a year. A liability arises when a company enters into a transaction that creates an expectation of a future outflow of cash or other economic resources. The key operator in this definition is the word “expectation,”…
What is Contribution Margin? Contribution margin is a business’s sales revenue less its variable costs. The resulting contribution dollars can be used to cover fixed costs (such as rent), and once those are covered, any excess is considered earnings. Contribution margin (presented as a % or in absolute dollars) can be presented as the total…
What is Contributed Surplus? Contributed surplus is an account in the shareholders’ equity section of the balance sheet that reflects excess amounts collected from the issuance of shares above their par value. The account also holds gains and losses from the issuance, repurchase, and cancellation of shares, as well as gains and losses from the…
What is the Cash Conversion Cycle? The Cash Conversion Cycle (CCC) is a metric that shows the amount of time it takes a company to convert its investments in inventory to cash. The conversion cycle formula measures the amount of time, in days, it takes for a company to turn its resource inputs into cash….
What are Cash Equivalents? Let’s begin by defining cash itself: cash includes legal tender, bills, coins, checks received but not deposited, and checking and savings accounts. Cash equivalents are low-risk, short-term investment securities with maturity periods of 90 days (three months) or less. These include bank certificates of deposit, banker’s acceptances, Treasury bills, commercial paper,…
What is Accounts Receivable (AR)? Accounts Receivable (AR) represents the credit sales of a business, which have not yet been collected from its customers. Companies allow their clients to pay for goods and services over a reasonable extended period of time, provided that the terms have been agreed upon. For certain transactions, a customer may…
What are Available for Sale Securities? Available for sale securities are the default categorization of securities that companies decide to invest in for the purposes of benefiting their financial position. Unlike trading securities, available for sale securities are not bought or sold for the sole purpose of realizing a short-term capital gain. They may be…
What is Sum of Years Depreciation (SYD)? Sum of Years Depreciation (SYD) is a method of accelerated depreciation. Similar to the double declining balance method, sum of years depreciation aims to depreciate a company’s assets at an accelerated rate. Companies may choose the SYD method as the practice will result in a larger depreciation tax…
