Financial Leverage and ROE Analysis
Creative Skills
Abilities to innovate and think outside conventional business practices.
Seasoned Offering
Additional offerings after a company is listed
Futures market
Agreement to deliver in the future, giving rise to forwards, futures, and swaps.
Financial Leverage Magnifier
Amplifies return on invested capital; enhances business value creation
Financial Leverage Multiplier
Analyzes a company's capital structure balance between debt and equity
Financial Risk
Associated with high financial leverage; arises when return on invested capital is lower than cost of debt
Corporate Social Responsibility
Business approach integrating social and environmental concerns in operations.
Human Institution
Business viewed as an entity embedded in society with social responsibilities.
Financial Cost Effect
Captured by earnings before tax over earnings before interest and tax
Company concern on stock trading
Companies worry due to events based on stock price.
Debt vs. Equity
Comparison of financing methods in a company's capital structure.
Stakeholder Theory
Concept focusing on creating value for various groups beyond shareholders.
Debt Affordability
Determines if a company can afford its debt based on return on invested capital
Interest Burden
Driven by the level of debt and interest rates; affects financial costs
Global Financial Crisis
Economic downturn due to neglecting stakeholder interests.
Capital Turnover
Efficiency of capital use in generating sales
Financial Performance
Evaluation of a company's success through metrics like ROE.
Costs of Debt
Expenses incurred by a company for using borrowed funds.
Initial Public Offering (IPO)
First time a company lists its shares on the market
Capital markets
For equity and fixed income instruments maturing in over one year.
Money markets
For fixed income instruments maturing in one year or less.
Primary Markets
For instruments first sold to investors
Secondary Markets
For securities traded between investors post IPO
Spot market
Immediate delivery for instruments like commodities.
Return on Equity
Impacted by financial leverage; higher when return on invested capital exceeds cost of debt
Financial service providers
Include commercial banks and fintech companies.
Financial market participants
Include financial service providers, lenders, investment banks, brokers, exchanges, alternative trading systems, dealers, and arbitrageurs.
Alternative investments
Includes commodities, currencies, cryptocurrencies, hedge funds, private equities, venture capital, real assets, and securitized investments.
Return on Equity (ROE)
Indicator of profitability showing net income relative to shareholder equity.
Tax Effects
Influence of taxation on a company's financial performance.
Operating Profitability
Influenced by cost structure and operating leverage
Entrepreneurship
Initiating and managing a business venture with societal impact.
Public Markets
Instruments sold to all investors
Private Markets
Instruments sold to qualified investors only
Institutional Investors
Investors with higher investment capacity and willingness
Financial Reports Investigation
Involves deep diving into a company's financial numbers
Autonomy and Mastery
Motivating factors beyond money, emphasizing purpose and skill development.
Trading between investors
No cash goes back to the company, cash exchanges between investors.
Return Discrepancy
Occurs when return on equity is higher than return on invested capital due to positive financial leverage
Positive Financial Leverage
Occurs when return on invested capital exceeds cost of debt
Negative Financial Leverage
Occurs when return on invested capital is lower than cost of debt
Value Creation
Process of generating benefits for customers, suppliers, employees, and communities.
Investment banks
Provide advisory services for corporate transactions like IPOs and mergers.
Traditional investments
Public traded securities, mutual funds, and ETFs.
Operating Profit Margin
Ratio of operating income to net sales
Value beyond Money
Recognition of non-monetary drivers like purpose and autonomy in business.
Capital Structure
Reflects the balance or proportion between debt and equity in a company
Invested Capital
Reflects the financial structure effect in a company
Effective Tax Rate
Tax rate calculated based on actual taxes paid
Statutory Tax Rate
Tax rate set by law
Arbitrageurs
Trade on their accounts to close price gaps between markets.
Financial Leverage
Use of debt to increase returns and magnify risks for shareholders.
Financial Market
Venue for trading funds between users and providers of capital
Brokers
Work with clients to facilitate trading.