Month: October 2020

The weighted average rating factor (WARF) is a measure that is used by credit rating companies to indicate the credit quality of a portfolio. This measure aggregates the credit ratings of the portfolio’s holdings into a single rating. WARFs are most often calculated for collateralized debt obligations (CDOs).

Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.

The earnings multiplier frames a company’s current stock price in terms of the company’s earnings per share (EPS) of stock. It presents the stock’s market value as a function of the company’s earnings and is computed as (price per share/earnings per share). It is also known as the price-to-earnings (P/E) ratio. It can be used as a simplified valuation tool for comparing relative costliness of the stocks of similar companies, and for judging current stock prices against their historical prices on an earnings relative basis. read more

The EBITDA-to-interest coverage ratio is a financial ratio that is used to assess a company’s financial durability by examining whether it is at least profitable enough to pay off its interest expenses using its pre-tax income. Specifically it looks to see what proportion of earnings before interest, taxes, depreciation, and amortization (i.e., EBITDA), can be used for this purpose.

Normative economics is a perspective on economics that reflects normative, or ideologically prescriptive, judgments toward economic development, investment projects, statements, and scenarios. Unlike positive economics, which relies on objective data analysis, normative economics heavily concerns itself with value judgments and statements of what ought to be rather than facts based on cause-and-effect statements.

The entity theory is a basic theoretical assumption that all of the economic activity conducted by a business is separate from that of its owners. Entity theory is based on the idea that all of a company’s activities can and will be accounted for independently of the owners’ activities under the premise of limited liability, or the separation of ownership from control.

An unconsolidated subsidiary is a company that is owned by a parent company, but whose individual financial statements are not included in the consolidated or combined financial statements of the parent company to which it belongs. The company may be a wholly-owned subsidiary. Instead, an unconsolidated subsidiary appears in the consolidated financial statements of the parent as an investment.

Net tangible assets are calculated as the total assets of a company, minus any intangible assets such as goodwill, patents, and trademarks, less all liabilities and the par value of preferred stock. In other words, its focus is on physical assets such as property, plant, and equipment, as well as inventories and cash instruments.

An unconsolidated subsidiary is a company that is owned by a parent company, but whose individual financial statements are not included in the consolidated or combined financial statements of the parent company to which it belongs. The company may be a wholly-owned subsidiary. Instead, an unconsolidated subsidiary appears in the consolidated financial statements of the parent as an investment.

Net tangible assets are calculated as the total assets of a company, minus any intangible assets such as goodwill, patents, and trademarks, less all liabilities and the par value of preferred stock. In other words, its focus is on physical assets such as property, plant, and equipment, as well as inventories and cash instruments.