Calculating Free Cash Flow to Firm: Method 3: EBIT
In the previous articles, we learned about how to calculate the cash flow from operations if the cash flow statement or the income statement were given in the question paper. In many cases, these financial statements may not be given in full in the question paper. Instead, some excerpts from these statements may be provided […]
The TikTok Business Model
When we talk about social media, we often refer to companies like Facebook, Instagram, Twitter, and LinkedIn. However, in the past few years, another company has emerged as a huge player in the social media space. This company has created an application that is known for having high levels of user engagement. The application being […]
Dividend Yield Ratio – Formula, Meaning, Assumptions and Interpretation
Investors can be classified into types. The two predominant types are growth oriented investors and value oriented investors. Growth oriented investors invest in young growing companies. They expect returns in the form of capital appreciation backed by the high rate growth in the operations and profitability of the firm. On the other hand value investors […]
Creating a Revenue Model
A financial model is often called a “model of models.” This is because there are several parameters which go through a series of complex calculations themselves. Revenue is a perfect example of one such parameter. For the financial model as a whole, the revenue number is just one of the many inputs required for the […]
How Governments around the World are Bankrupting Future Generations for Present Consumption
The Debt Bomb and its Implications The world is in crisis and one of the reasons for that is the excessive debt held by people, companies, and countries. The west is especially hit hard because of the profligacy of the last three decades starting from the 1970s, which have resulted in a consumerist lifestyle, and […]
Every individual needs to put some part of his income into something which would benefit him in the long run. Investment is essential as unavoidable circumstances can arise anytime and anywhere.
One needs to invest money into something which would guarantee maximum returns with minimum risks in future. Money saved now will help you overcome tough times in the best possible way.
Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing.
Organizations in order to raise capital issue bond to investors which is nothing but a financial contract, where the organization promises to pay the principal amount and interest (in the form of coupons) to the holder of the bond after a certain date. (Also called maturity date). Some Bonds do not pay interest to the investors, however it is mandatory for the issuers to pay the principal amount to the investors.
Maturity date refers to the final date for the payment of any financial product when the principal along with the interest needs to be paid to the investor by the issuer.
Following are the types of bonds:
In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and fluctuations in the market.
Floating rate bonds have a fluctuating interest rate (coupons) as per the current market reference rate.
Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types of bonds, issuers only pay the principal amount to the bond holders.
Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation linked bonds is generally lower than fixed rate bonds.
Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds enjoy interest throughout.
Bonds which are given less priority as compared to other bonds of the company in cases of a close down are called subordinated bonds. In cases of liquidation, subordinated bonds are given less importance as compared to senior bonds which are paid first.
Bearer Bonds do not carry the name of the bond holder and anyone who possesses the bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by the bond holder, anyone else with the paper can claim the bond amount.
War Bonds are issued by any government to raise funds in cases of war.
Bonds maturing over a period of time in installments are called serial bonds.
Climate Bonds are issued by any government to raise funds when the country concerned faces any adverse changes in climatic conditions.
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The Perils of the Immediacy Trap and Why we can and cannot do without it
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