Calculating Cost of Debt Capital
The cost of debt is the cost of financing a debt whenever a company incurs a debt by either issuing a bond or taking a bank loan. Two methods for estimating the before-tax cost of debt are the yield-to-maturity approach…
Real Options Relevant to Capital Investment (2022)
Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date. Likewise, real options are capital allocation options that allow managers the right, but not…
Relationship between Company’s Investments, Value, and Share Price
Projects which have a positive NPV should, in theory, increase the value of a company as well as the value of its stock. This could help explain the popularity of NPV as a capital allocation evaluation method. Relationship among NPV,…
Capital Allocation
Capital allocation describes the process companies use to make decisions on capital projects, i.e., projects with a lifespan of one year or more. It is a cost-benefit exercise that seeks to produce results and benefits which are greater than the…
Short-term Funding
The objectives of a short-term borrowing strategy include: Master short-term funding concepts with our Free Trial. Several factors will influence a company’s short-term borrowing strategies: Start Free Trial → Master short-term funding sources, financing choices, liquidity management, and working capital…
Measuring Liquidity
A company’s liquidity is measured by the extent to which it has current assets, i.e., cash, marketable securities, accounts receivable and inventory which can be readily used to satisfy its short-term obligations. Measuring Liquidity Liquidity ratios assist in measuring the…
Primary and Secondary Sources of Liquidity
Liquidity management describes a company’s ability to generate cash when needed to meet its short-term obligations. Effective liquidity management means that a company can manage its major sources of liquidity efficiently. Although these major sources tend to vary from one…
Types of Financing Methods
Every source of capital has different risks for the company and the investor. For example, debt is a safer investment than common stock because it has a higher priority in claims in case of financial distress. It is, however, riskier…
Environmental Factors and Investment Analysis
Pollution prevention, energy efficiency, reduced emissions, and adherence to environmental safety and regulatory standards are some of the key environmental factors which are considered in the investment analysis process. Concerning the influence of social factors on investment, the investment analysis…
Factors Considered in Investment Analysis
Environmental, social and governance factors are collectively referred to by the acronym “ESG.” ESG integration is the practice of considering environmental, social, and governance factors in the investment process. Ideally, ESG integration should be implemented across all asset classes, including…
