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What is Minority Interest?
Minority interest is a portion of a company’s stock that is not owned by the parent company, and refers to a type of ownership that generally cannot exert influence over a company’s business decisions. If an outside investor or another company has a less than 50% stake in a company via shares, then they are said to have a minority interest. From an accounting standpoint, only the dividends of a minority interest are counted on a company’s books. If they exert influence over the decision-making, then a percentage of the income may also need to be included. Continue reading...
What is Dow Theory?
Dow Theory is perhaps the longest-standing method of market analysis still used in modern finance. It suggests that markets experience primary trends (which last several years), intermediate trends (which last under a year), and minor trends (which last less than a month). Markets are in an upward trend if an average exceeds certain thresholds, followed by a similar movement from another average. Longer, larger trends are considered more predictive than smaller ones, though correctly reading the primary trend in the main goal. Continue reading...
What is an Interest Rate?
An interest rate is a simple financial principle that’s been around for centuries, whereby a borrower has to pay for money borrowed. The interest rate is agreed to between the lender and the borrower, and there may be provisions under which the rate could change over the course of a loan. In simple terms, an interest rate is the cost of money. Continue reading...
What is Accrued Interest?
Accrued Interest applies to a bond or loan, accounting for the interest that is calculated per diem for the time between payments. Accrued Interest is the amount of interest that has "built up" between the last payment and the present, with regards to bonds and loans. If a bond is sold from one person to another, and the corporation or municipality that issued the bond pays out an interest payment at regular intervals, the sale price will have to factor-in the "accrued interest" since the last distribution, and the buyer will have to pay the seller for the accrued interest due while the latter held the bond. Continue reading...
What is a Dividends Received Deduction?
A Dividends Received Deduction (DRD) is a tax deduction available to corporations when they are paid dividends from another corporation. This is a provision to reduce the number of times an amount of earnings can be taxed: company A, which is paying the dividend, will have already been taxed on it, and the shareholders of company B will be taxed as well, so the Dividends Received Deduction alleviates taxes at the intermediary stage when Company B receives it. Continue reading...
What is Cash Flow from Investing Activities?
In the Cash Flow Statement, the cash flow in and out of investments, whether in shares of other companies or in capital assets, is recorded. The gains or losses from investment activities, including but not limited to shares of other companies (non-controlling interest) and the gains or losses experienced with subsidiaries, as well as negative cash flow or positive cash flow into or out of capital investment projects such as production infrastructure, are recorded in a portion of the Cash Flow Statement called Investing Activities. Continue reading...
What is short interest?
Short interest is a term used to describe how many short positions are open for a given security or market at a given time. It is often expressed as a percentage of the total securities outstanding and is used for the short interest ratio. This serves as a gauge of bearish market sentiment, since short-sellers are expecting price action to trend downward. The short interest ratio (SIR) provides a context for the quantity of short interest outstanding by stating this amount in relation to the average daily trading volume. Continue reading...
What does open interest mean?
Open interest is a measurement of the outstanding open positions in a derivative security. Strong open interest means the derivative will have high liquidity. Open Interest is not the same thing as Trading Volume, but it does give an indication of liquidity and activity in a derivative. Open Interest is the number of open positions for a derivative, like an option. The Options Clearing Corporation tallies up the ‘open interest’ numbers, but they are not posted until the morning following the count. Open Interest isn't necessarily indicative of a bullish or bearish forecast for the underlying security, but it does generally mean that the option will have high liquidity and that a seller will be able to find a buyer. Continue reading...
What is the Interest Coverage Ratio?
Also known as the debt service ratio, The interest coverage ratio is a measure of how many times a company can pay the interest owed on its debt with EBIT. To calculate it, you simply divide EBIT (earnings before interest and taxes) by interest expense. A company with a low interest coverage ratio means it has fewer earnings available to make interest payments, which can imply solvency issues and could mean a company would be at risk if interest rates go up. Continue reading...
What is Mortgage Interest Deduction?
Mortgage Interest Deductions are allowable income tax deductions that equal the amount of mortgage payments in a year that are attributable to interest rather than principal repayments. Mortgage insurance premiums may also be deductible. Interest deductions are subject to the Pease phaseout, while mortgage insurance premium deductions are not allowed over certain income levels. Interest payments on mortgages are generally deductible from income taxes. Continue reading...
What is Effective Annual Interest Rate?
Also known as the annual equivalent rate (AER), the effective annual interest rate is the actual annual interest rate on a bond or loan when it compounds more than once a year. The effects of compounding will make the AER higher than the annual interest rate if the security compounds greater than annually. Continue reading...
What is Times Interest Earned (TIE)?
Times Interest Earned (TIE) is also known as the interest coverage ratio, is a cash-flow analysis that compares the pre-tax earnings of a company to the total amount of interest payable on their debt obligations. A healthy ratio indicates that a company will probably not default on loan repayments. To compute this ratio, divide a company’s annual income before taxes by their annual interest payments on debt obligations. This ratio is not concerned with the actual principal due on loans since the principal amount is already pegged to some of the assets on the books of the company, and other fundamental equations will already factor that in. Continue reading...
How Will Ethereum Scale?
With cryptocurrencies, there is always a question of how the blockchain will scale as technology changes and the currency grows in demand. Blockchains are meant to be immutable, meaning that once a change has been made to it, such as the data for a particular transaction, the record of the transaction cannot be changed or forgotten. This means that, for one thing, the distributed ledger that holds the record of all the transactions will inevitably get larger and larger, and any computer that wishes to be a node may have to download a potential cumbersome file with all that data. Continue reading...
What is the Short Interest Ratio?
The Short Interest Ratio (SIR) measures investor sentiment for a given company and is calculated using the number of shares being shorted divided by the average daily trading volume of the stock. Also called the short ratio or float short, the SIR is a ratio of the number of shares being shorted divided by the average daily trading volume for the stock over the last 30 days. The ratio can be interpreted as the number of days it takes short sellers to repurchase borrowed shares, or an approximation for the number of shares that have been sold short and not yet covered as a percentage of all trading volume. Continue reading...
What is a Leveraged Buyout?
A leveraged buyout occurs when members of management use outside borrowed capital to buy a controlling share in the company. Often times, the assets of the company being acquired are used as collateral for the borrowed capital. The purpose of leveraged buyouts is to acquire another company without having to commit a lot of working capital up front. In a typical leveraged buyout, you may see a ratio of 90% debt financing to 10% equity used to acquire the company. Continue reading...
What is foreign exchange intervention?
If a central bank takes actions that intentionally and artificially affect the value of a currency, particularly its own, it is engaging in what is known as a Foreign Exchange Intervention, or an interventionist policy. Central banks occasionally use interventions in foreign exchange markets to achieve a desirable end. The banks will intentionally make trades and hold certain amounts of currencies or derivatives with the sole purpose of manipulating the value of their domestic currency. The reasons for that manipulation might be to slow down inflation or to make their county’s exports look more attractive by pushing the value of their currency lower. Continue reading...
What is Earnings Before Interest Depreciation and Amortization (EBIDA)?
EBIDA is one of the family of earnings metrics which give the analyst, investor, or accountant an opportunity to view earnings, which is synonymous with net income, with a few factors added back into it. In this case, interest payments on debt, depreciation of hard assets on the standard IRS schedules, and amortization of principal debts are all added back into the earnings of the company for the current period. Not to be confused with EBITDA, its more popular counterpart. Continue reading...
What are the Best Internet Sources for Financial Information?
The internet is overflowing with the advice, analysis, and chest-pounding of millions of self-purported gurus and market commentary services. There are plenty of well-informed and trustworthy sources out there, too. There are literally millions of websites providing you with various kinds of financial information, advice, recommendations, opinions, rumors, get-rich-quick schemes, and “facts.” There is a short list of companies that are well-established with a reputation worthy of trust: Morningstar, Moody’s, Fidelity, Schwab, Goldman Sachs, etc. Continue reading...
What is a Dividend Rollover Plan?
Dividend rollover plan is another, rarely used way to refer to a Dividend Reinvestment Plan (DRIP). Unfortunately just reinvesting dividends in a systematic way will not get you out of any tax implication associated with the dividends attributed to your account. An automatic dividend reinvestment plan (DRIP) is an option in some investment accounts and financial products. Any dividends paid out will be reinvested in the same mutual fund, ETF, or stock at the earliest possible opportunity. Continue reading...
What is the FCC?
The Federal Communications Commission is a bipartisan regulatory body that oversees interstate communications media, grants licenses to entities which plan to use the bands available, and to some extent regulates the content of these communications in the public interest. Communications media, including radio, satellite, cable, telephone, and others, are overseen and regulated by the FCC. They help to standardize measures and regulate the commercial activity of the entities which seek to use these media, including licensing and content regulation. Continue reading...