Introduction to the Securities Markets: Primary and Secondary Markets

Securities market is an exchange where sale and purchase transactions of securities are conducted on the base of demand and supply. A well-functioning securities market should be able to provide timely and accurate information on the past transactions, liquidity, low transaction costs (internal efficiency) and securities prices that rapidly adjusted to all available information (external [...]

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Problems with the Corporate Structure

Corporations have much more complex structures than other forms of organization and therefore problems come along the way. One key difference between corporations and other forms of organization is separation of control and ownership. The agency problem, also known as the “principal-agent problem”, is a conflict of interest when someone (the principal) hires another (the [...]

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Accrual Vs. Cash Basis Accounting

The key difference between the two primary accounting methods, cash-base and accrual accounting, is timing. With cash-based accounting, transactions are recorded when cash actually changes hands. With accrual accounting, transactions are recorded when they occur, regardless of when the cash is actually received or paid. Most of the time, both methods are approved accounting methods [...]

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Introduction to Derivatives

Long vs. Short Being “Long” something means you own it. Being “Short” something means you have created an obligation that you have sold to someone else. If I am long 100 shares of AAPL, that means that I possess 100 shares of AAPL. If I am short 100 shares of AAPL, that means that my [...]

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Accounting Standards and Financial Statement Basics

Valuation advisors use financial statements of a firm to assess its financial performance, therefore standardization of accounting practices is necessary. Accounting standards provides guidelines on how to prepare and present income and expenses, assets, owners’ equity and liabilities for a firm and makes the financial statements comparable to one another. There are two primary standard-setting [...]

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Types of Value- Fair Market Value, Intrinsic Value, Liquidation Value, Investment Value

To understand and differentiate types of value is important as valuations are needed in many ways for many reasons. Fair Market Value is the most probable price which a company or an asset would bring in a competitive and open market (in a fair sale). It is an estimate of the market value that an [...]

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Advantages and Disadvantages of Business Organization Types

It is important to understand the different types of business organizations types such as a sole proprietorship, partnership, and corporation. A business’s organizational structure influences issues, legal issues, financial concerns, and personal concerns. A Sole Proprietorship is a business with one owner who operates the business on his or her own or employ employees. It [...]

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The Capital Asset Pricing Model (CAPM) and the Security Market Line (SML)

The Capital Asset Pricing Model (CAPM) calculates the expected return on equity of an individual company. It is based on the expected rate of return on the market, the risk-free rate and the beta coefficient of an individual security or portfolio. Where,  Re: Return on Equity Rf: risk-free rate E(Rm): expected rate of return on market, and [...]

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Yield Spreads & Credit Spreads

A yield spread is the difference in yield between two bonds or two types of bonds. It can be used to compare the maturity, credit rating, liquidity and risk of two bonds, or of one bond to a benchmark. This difference can be measured in the following ways: Absolute yield spread or nominal spread: (yield [...]

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Financial Ratio Cheat Sheet

This is a summary of financial ratios commonly used in the evaluation of a company. Liquidity ratios 1)      Current Ratio = Current Asset / Current Liability 2)      Quick Ratio = (Cash + Marketable securities + account receivables) / Current Liability 3)      Cash Ratio = (Cash + Marketable securities)/current Liability 4)      Cash flow from operations ratio [...]

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