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.