What is Insolvency
In case a debtor is not in a position to pay his debts in full, a petition can be filled by the debtor himself or by any creditors to get the debtor declared as an insolvent
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Showing posts with label Accounting Basics 2. Show all posts
Showing posts with label Accounting Basics 2. Show all posts
Wednesday, 6 April 2011
Tuesday, 5 April 2011
Bridge Financing
It refers to loans taken by a company normally from commercial banks for a short period, pending disbursement of loans sanctioned by financial institutions. Generally, the rate of interest on bridge finance is higher as compared with term loans.
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Bridge Financing
It refers to loans taken by a company normally from commercial banks for a short period, pending disbursement of loans sanctioned by financial institutions. Generally, the rate of interest on bridge finance is higher as compared with term loans.
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Dividend Yield
It gives the relationship between the current price of a stock and the dividend paid by its issuing company during the last 12 months. It is caliculated by aggregating past year’s dividend and dividing it by the current stock price.
Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield is considered to be evidence that a stock is under priced, where as a low dividend yield is considered evidence that a stock is over priced.
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Capital account and Current account
The capital account of international purchase or sale of assets. The assets include any form which wealth may be held. Money held as cash or in the form of bank deposits, shares, debentures, debt instruments, real estate, land, antiques, etc…
The current account records all income related flows. These flows could arise on account of trade in goods and services and transfer payment among countries. A net outflow after taking all entries in current account is a current account deficit. Govt. expenditure and tax revenues do not fall in the current account.
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Capital account and Current account
The capital account of international purchase or sale of assets. The assets include any form which wealth may be held. Money held as cash or in the form of bank deposits, shares, debentures, debt instruments, real estate, land, antiques, etc…
The current account records all income related flows. These flows could arise on account of trade in goods and services and transfer payment among countries. A net outflow after taking all entries in current account is a current account deficit. Govt. expenditure and tax revenues do not fall in the current account.
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Global DepositoryReceipts GDR
GDR’s are essentially those instruments which posseses the certain number of underline shares in the custodial domestic bank of the company i.e., GDR is a negotiable instrument in the form of depository receipt or certificate created by the overseas depository bank out side India and issued to non-resident investors against the issue of ordinary share or foreign currency convertible bonds of the issuing company. GDR’s are entitled to dividends and voting rights since the date of its issue.
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American Depository Receipts ADR
It is a dollar denominated negotiable instruments or certificate. It represents non-US companies publicly traded equity. It was devised into late 1920’s. To help American investors to invest in overseas securities and to assist non –US companies wishing to have their stock traded in the American markets. These are listed in American stock market or exchanges.
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Warrants
Options generally have lives of upto one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called warrants and are generally traded over- the- counter
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Swaps
Swaps are private agreements between two companies to exchange casflows in the future according to a prearranged formula.
So this can be regarded as portfolios of forward contracts.
Types of swaps:
1: Interest rate Swaps
2: Currency Swaps.
1. Interest rate Swaps: The most common type of interest rate swap is ‘Plain Venilla ‘.
Normal life of swap is 2 to 15 Years.
It is a transaction involving an exchange of one stream of interest obligations for another. Typically, it results in an exchange of ficed rate interest payments for floating rate interest payments.
2. Currency Swaps: - Another type of Swap is known as Currency as Currency Swap. This involves exchanging principal amount and fixed rates interest payments on a loan in one currency for principal and fixed rate interest payments on an approximately equalant loan in another currency. Like interest rate swaps currency swars can be motivated by comparative advantage.
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Swaps
Swaps are private agreements between two companies to exchange casflows in the future according to a prearranged formula.
So this can be regarded as portfolios of forward contracts.
Types of swaps:
1: Interest rate Swaps
2: Currency Swaps.
1. Interest rate Swaps: The most common type of interest rate swap is ‘Plain Venilla ‘.
Normal life of swap is 2 to 15 Years.
It is a transaction involving an exchange of one stream of interest obligations for another. Typically, it results in an exchange of ficed rate interest payments for floating rate interest payments.
2. Currency Swaps: - Another type of Swap is known as Currency as Currency Swap. This involves exchanging principal amount and fixed rates interest payments on a loan in one currency for principal and fixed rate interest payments on an approximately equalant loan in another currency. Like interest rate swaps currency swars can be motivated by comparative advantage.
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Options
An option gives its Owner the right to buy or sell an Underlying asset on or before a given date at a fixed price.
There can be as may different option contracts as the number of items to buy or sell they are,
Stock options, Commodity options, Foreign exchange options and interest rate options are traded on and off organized exchanges across the globe.
Options belong to a broader class of assets called Contingent claims.
The option to buy is a call option.The option to sell is a PutOption.
The option holder is the buyer of the option and the option writer is the seller of the option.
The fixed price at which the option holder can buy or sell the underlying asset is called the exercise price or Striking price.
A European option can be excercised only on the expiration date where as an American option can be excercised on or before the expiration date.
Options traded on an exchange are called exchange traded option and options not traded on an exchange are called over-the-counter optios.
When stock price (S1) <= Exercise price (E1) the call is said to be out of money and is worthless.
When S1>E1 the call is said to be in the money and its value is S1-E1.
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Future contracts:
It is an Agreement to buy or sell an asset it is at a certain time in the future for a certain price. Futures will be traded in exchanges only.These is settled daily.
Futures are four types:
1. Commodity Futures: Wheat, Soyo, Tea, Corn etc..,.
2. Financial Futures: Treasury bills, Debentures, Equity Shares, bonds, etc..,
3. Currency Futures: Major convertible Currencies like Dollars, Founds, Yens, and Euros.
4. Index Futures: Underline assets are famous stock market indicies. NewYork Stock Exchange.
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Forward Contracts
Forward Contracts: It is a private contract between two parties.
An agreement between two parties to exchange an asset for a price that is specified todays. These are settled at end of contract
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Derivatives
A derivative is a security whose price ultimately depends on that of another asset.
Derivative means a contact of an agreement.
Types of Derivatives:
1. Forward Contracts
2. Futures
3. Options
4. Swaps
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Derivatives
A derivative is a security whose price ultimately depends on that of another asset.
Derivative means a contact of an agreement.
Types of Derivatives:
1. Forward Contracts
2. Futures
3. Options
4. Swaps
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Profitability Index
One of the methods comparing such proposals is to workout what is known as the ‘Desirability Factor’ or ‘Profitability Index’.
In general terms a project is acceptable if its profitability index value is greater than 1.
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What are the Methods of Capital Budgeting
1. Traditional Methods
Payback period method
Average rate of return (ARR)
2. Discounted Cash Flow Methods or Sophisticated methods
Net present value (NPV)
Internal rate of return (IRR)
Profitability index
Pay back period: Required time to reach actual investment is known as payback period.
= Investment / Cash flow
ARR: It means the average annual yield on the project.
= avg. income / avg. investment
Or
= (Sum of income / no. of years) / (Total investment + Scrap value) / 2)
NPV: The best method for the evaluation of an investment proposal is the NPV or discounted cash flow technique. This metod takes into account the time value of money.
The sum of the present values of all the cash inflows less the sum of the present value of all the cash outflows associated with the proposal.
NPV = Sum of present value of future cash flows – Investment
IRR: It is that rate at which the sum total of cash inflows aftrer discounting equals to the discounted cash outflows. The internal rate of return of a project is the discount rate which makes net present value of the project equal to zero.
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Capital Budgeting
Process of analyzing, appraising, deciding investment on long term projects is known as capital budgeting
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Capital Budgeting
Process of analyzing, appraising, deciding investment on long term projects is known as capital budgeting
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