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Economics & Finance
Banking & Finance Articles
Page 58 of 102
What is Liquidity Management?
Many businesses in the corporate world tie too much of their value in assets which are inventory, real estate and equipment of the firm. Although, having assets is an important part of organizations, having too low cash in hand could be catastrophic for all businesses. This, short term cash held for sudden and smaller necessities is known as liquidity of a firm.As is obvious, managing liquidity is a separate process or financial function organizations have to deal with on a day to day basis. And though it seems like a child's play, in reality managing liquidity is one of the ...
Read MoreWhat is Net Present Value (NPV) and what are the pros and cons of using NPV method in Capital Budgeting?
Net Present Value (NPV) is the value of a fund that would mature in the future. The NPV method is used for financial analysis and to determine the feasibility of a project. It is the value of future cash inflows and outflows in relation to initial investments made by an individual or a firm.What is NPV?An organization needs to take very conscious and wise decisions about growth and expansion. In many cases, huge amounts of funds are involved. So, the organizations need to do capital budgeting. NPV is a good option to calculate the capital budgets to find the most ...
Read MoreWhat are Agency Costs?
Agency costs are costs incurred to handle agency problems. These problems occur due to conflicts between the shareholders (principal) and managers (agents). The agency costs are used to mitigate the conflicts. Usually, there should be no conflicts between principals and agents in a company setting but if shareholders think that managers are utilizing too many funds for their self-interest agency problems may arise.Types of Agency CostsThere are two broad categories of agency costs. The first arises when the managers use the company's resources for self-benefits and the second when shareholders spend money to discipline the managers.There are two sub-types of ...
Read MoreWhat are the differences between IPO and FPO?
Firms raise funds for a variety of reasons, such as growth, expansion and research, and development. Some firms also raise funds to pay the debts back to the creditors and to fend off competition. Seeking lenders and investors to invest in the company is far more favorable than using the profits from ongoing operations. Companies may require funds to carry on with the operations too.Public companies raise money by sharing their shares in an Initial Public Offering (IPO). The IPO lists the company's shares in the stock market and it is traded in the exchange. Companies may also raise debt ...
Read MoreWhat is Profit Maximization and what are its limitations as a financial goal?
What is Profit Maximization?As the term suggests, Profit Maximization is a philosophy to maximize the profits from a business concern. In the free economy, there is always profitability if the goods and/or services are good. So, firms selling good products and services increase the prices of goods to generate more revenues and profits. After the market competition for such service providers, however, a point is reached where the maximum profit halts.This is the point of profit maximization.Note − To maximize profits, one must produce quality goods or services.The underlying cause of profit maximization is efficiency. This helps the companies to ...
Read MoreWhat is a Sinking Fund?
A Sinking Fund is a special fund that is created by depositing fixed payments each period to gain an estimated and fixed amount after a specific period. In other words, a sinking fund is an account that earns compound interest into which a fixed payment is made periodically for a specific period of time.A sinking fund is generally created to accumulate a fixed sum of money after a specific period. One can use the sinking fund to pay off a loan as a lump sum after a certain period. In the meantime, until the lump-sum period is reached, one can ...
Read MoreWhy do Effective Interest Rates yield more than Nominal Interest Rates?
The interest rates paid annually by financial organizations on an annual basis are known as Nominal Interest Rates. In such an arrangement, the interest is paid at the end of each year. If compounding is done, that will also be covered under this arrangement in one shot.However, there are arrangements in which financial organizations pay interests on funds semi-annually or quarterly. For example, in the case of loans, the charges or interests may be levied semi-annually. Such an arrangement of paying the interest several times within a selected period is known as Effective Interest Rates.Nominal Interest Rate Vs Effective Interest ...
Read MoreHow is Annuity Due different from General Annuity?
Annuity Due is a payment of receipt of a fixed amount of money at the beginning of each period for a specified number of periods. It is different from general/ordinary annuity in which the payments are made after the end of each payment cycle. One may find an Annuity Due while paying rent, planning for retirement, borrowing money, or buying an annuity.Since the concept of Annuity is based on Time Value of Money, the payer usually prefers to pay ordinary annuities. This helps them have the money for coming periods. The lender, however, prefers Annuity Due because they get to ...
Read MoreKurtosis – Definition, Example, Types
Kurtosis is a statistical term used to quantify distribution that is like skewness. Unlike skewness, which only distinguishes absolute value in one tail from those in the other, kurtosis assesses extreme values in both tails. Tail data exceeds the tails of the normal distribution in distributions with strong kurtosis. The tails of ranges with low kurtosis are often less severe than the tails of a normal circulation.A high kurtosis is a trend that investors watch closely as it could result that there will be sharper results in either directions of profits or loss. This in comparison to the normal deviation ...
Read MoreKorean Composite Stock Price Indexes – Analysis, Importance & Pricing
Korean Composite Stock Price Indexes (KOSPI) are a series of indexes that follow the total performance of the Korean Stock Exchange as well as the performance of its constituents. Every one of the KOSPI indexes represents a market average that has been capitalization weighted.These indexes are most well-known for the KOSPI 200, which is comprised of the top 200 publicly traded stocks traded on the Korean Stock Exchange and measures the performance of around 70% of the total market value of the Korean Stock Exchange as a whole.When investors or traders analyze performance of the Korean Exchange, they often fall ...
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