Simple Capital Structure
What is a Simple Capital Structure? A simple capital structure is a capital structure that contains no potentially dilutive securities. In other words, a simple capital structure consists only of common stock, nonconvertible debt, and nonconvertible preferred stock. Types of Capital Structure Simple capital structure Complex capital structure As outlined above, a simple capital structure...
Funding Liquidity Risk
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...
Basel I
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...
Defensive Industries
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...
Debt-to-Income Ratio
What is the Debt-to-Income Ratio? The debt-to-income (DTI) ratio is a metric used by creditors to determine the ability of a borrower to pay their debts and make interest payments. The DTI ratio compares an individual’s monthly debt payments to his or her monthly gross income. It is a key indicator that lenders use to measure...
