The major differences between financial leverage and operating leverage are as follows −Financial leverageOperating leverageUse of capital structure to earn better returns and to reduce taxes.Tells about capital structure of the firm.Measures financial risk.Relates EBIT and EPS.More the financial leverage, more financial risk.Preferred high.DFL = EBIT/EBT.Rise to financial risk.Degree of financial leverage relates to liabilities side in balance sheet(different source of finance).Firm ability to use fix costs to generate more returns.Tells about fixed cost of the firm.Measures operating risk of the business.Relates sales and EBIT.Higher the operating leverage, more operating risk.Preferred low.Rise to business risk.DOL = Contribution/EBIT.Degree of operating leverage ... Read More

The major differences between leasing and financing are as follows −LeasingFinancingLegal agreement between lessor and lessee.Ownership is with lessor.Principal and interest component is considered.Risk is with lessor.Very affordable.We can use the asset.Monthly payments are low.Choice of buy the asset or return to the lessor is available.Partial amount is paid to buy the asset.Ownership is with the borrower.Down payment or instalments are considered.Risk is with borrower.Restricts affordability.We can own the asset.High monthly payments, when compared to lease.Own the asset after fully payment is made.

The major differences between International Financial Reporting Standards (IFRS) and Indian Generally Accepted Accounting Principles (GAAP) are as follows −IFRSIndian GAAPThe full form of IFRS is International Financial Reporting Standards.Developed by International Accounting Standards Board (IASB).A company has to disclose a note that its financial statements comply with IFRS.Adopted by more than 110+ countries.IFRS 1 provide clear instructions about how to adopt IFRS for first time.No exemption for cash flow statements.IAS 16 mandates component accounting.It has comprehensive guidance for balance sheets, an entity to present assets and liabilities and classify them as current or non-current items.The full form of GAAP ... Read More

The major differences between mutual funds and stock are as follows −Mutual fundsStockSimilar to shareholders and they own the fundPool of money collected from investorsThere is no possibilities of original issuesThere no nominal valueHave net asset valuesPartially paid or sometimes fully paidLow preferenceTraded once in a dayManaged by fund managerValue depends on net asset valueCommission can be paid at both entry and exit or either oneOwnership of a companyTwo stocks can have the same valueThere is a possibility of original issueThere is some nominal valueSome definitive numerical valueAlways fully paidHigh preferenceTrade throughout the dayManaged by investorsValue depends on price per ... Read More

The major differences between stock and bonds are as follows −StockPartial ownership of a public limited company is provided in exchange of monetary value.Known as stockholders.No guarantee of return on investment.No fixed profit on investment.Return earned in terms of dividends.Generally purchased through stock exchange.High risk on investment.Maturity time depend on investors.Equity.Traded through central exchanges.Shareholders get voting rights.BondBorrowed capital for an institution or organization.Known as bondholders.Guaranteed return on investment.Fixed profit earned.Return earned in terms of interest.Generally issued by government institutions, financial institutions, public undertakings, private institutions.Very low risk on investment.Fixed time of maturity (at time of purchases).Debt.Traded over the counter (OTC).Liquidation ... Read More

The major differences between debentures and bonds are as follows −DebenturesThe instrument used to raise long term finances.Issued by private companies.Known as debenture holders.Short term tenure.Debentures = assets – (Liabilities + shareholders reserve+ Bonds).They are both unsecure and secure in nature.High risk.Gives high interest rate.Liquidity is done after bond holders.Periodical payment structure.Can be convertible to equity shares.BondsInstruments which highlights the debt taken towards the holders.Issued by corporations, government agencies and financial institutions.Known as bondholders.Tenure is higher than debentures.Bonds = assets – (liabilities + shareholders reserve + debentures).They are secure in nature.Less risk compared to debentures.Gives you low interest.Liquidity bonds paid ... Read More

The major differences between shares and debentures are as follows −SharesDebenturesOwned funds of the company.Represents capital of the company.Known as shareholders.Will get dividends.Deduction is not allowed.No security for payments.They have voting rights.Can’t be converted to debentures.No trust deedAppropriation of profit.High risk.Don’t lien on asset of the company.Don’t have leverage benefits.Disclosed in balance sheet as equity and liabilities column.Borrowed fund of the company.Represents debt of the company.Known as debenture holders.Gets interest.Deduction is allowed from profits.Security for payment is there.Can be converted into shares.Charge against profit.Trust deed is executed.Most secured.Have lien against assets of the company.Have leverage benefit.Not disclosed in balance sheet.Read More

The major differences between preference shares and debenture are as follows −Preference sharesDebenturesCapital funds of the company.Represents capital of the company.Shareholders are owners.Paid out of profits earned.Indirectly dilute the control of existing shareholders.Dilution in profit sharing percentage.Not tax deductible expenses.No tax benefits on preference capital.Effect on authorised capital.Blockage of funds is required to increase authorised capital.Borrowed funds of the company.Represents debt of the company.Shareholders are creditors.Interest paid irrespective of profits.Doesn’t dilute the control of existing shareholders.No dilution of profit sharing percentage.Tax deductible expense.Have tax shield.No effect on authorised capital.No blockage of funds to increase authorised capital.Read More

The major differences between equity shares and preferred shares are as follows −Equity sharesPreferred sharesMain source for fund raising.Long term financing.No redeem ability till lifetime of company.They have ownership right.Received dividend at fluctuating rate.Paid at end, in case of insolvency.They have voting right.They can’t be converted.Risk is high.Dividend share is decided by company board.No option for redemption.Have right to participate in management.Have lower denominationMore borrowing capacity.High chances of over capitalization.Reduction of capital by reorganising.They are entitled to bonus issue.Shares have lender of capital.Short term financing.Can be redeemed after certain period of time.They don’t have owner right.Receive dividend at fixed rate ... Read More

The major differences between capital expenditure and revenue expenditure are as follows −Capital expenditureRevenue expenditureExpenditure incurred in enhancing the current one or buying the new one.It’s a long term expenditure.Lump sum amount is required.Amount is capitalized.Reflects in balance sheet.It’s a non- recurring in nature.Improves earning capacity.Expenditure is not matched with capital receipts.Benefit period is more than a year.Have physical presence except for intangibles.Expenditure incurred to run day to day operations.It’s a short term expenditure.Amount is small when compared to capital expenditure.Reflects in profit and loss account (income statement).It’s a recurring in nature.It will maintain the earning capacity.Expenditure is matched with ... Read More