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Thin Capitalisation
A company is said to be thinly capitalised when the level of its debt is much greater than its equity capital, i.e. its gearing, or leverage, is very high. An entity's debt-to-equity funding is sometimes expressed as a ratio. For example, a gearing ratio of 1.5:1 means that for every $1 of equity the entity has $1.5 of debt. A high gearing ratio can create problems for: * creditors, which bear the solvency risk of the company, and * revenue authorities, which are concerned about excessive interest claims. Credit risk If the shareholders have introduced only a nominal amount of paid-up share capital, then the company has lower financial reserves with which to meet its obligations. If all or most of the company's capital comes from debt, which (unlike equity) needs to be serviced, and ultimately repaid, it means that the providers of capital are ultimately competing with the company's trade creditors for the same capital resources. In general, most common law countries tend not to ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Company (law)
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared goals. Companies take various forms, such as: * voluntary associations, which may include nonprofit organizations * business entities, whose aim is generating profit * financial entities and banks * programs or educational institutions A company can be created as a legal person so that the company itself has limited liability as members perform or fail to discharge their duty according to the publicly declared incorporation, or published policy. When a company closes, it may need to be liquidated to avoid further legal obligations. Companies may associate and collectively register themselves as new companies; the resulting entities are often known as corporate groups. Meanings and definitions A company can be defined as an "artificial per ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equity Capital
In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $24,000 and owes $10,000 on the loan used to buy the car, the difference of $14,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business. A business that needs to start up or expand its operations can sell its equity in order to raise cash that does not have to be repaid on a set schedule. In government finance or other non-profit settings, equity is known as "net position" or "net assets". Origins The term "equity" describes this type of ownership in English because it was regulated through the system of equity law that developed in England during the Late Middle Ages to meet the growing demands of commercial activity. While the older common law courts dealt with questions of property title, equ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Gearing (finance)
In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, hoping that future profits will be many times more than the cost of borrowing. This technique is named after a lever in physics, which amplifies a small input force into a greater output force, because successful leverage amplifies the comparatively small amount of money needed for borrowing into large amounts of profit. However, the technique also involves the high risk of not being able to pay back a large loan. Normally, a lender will set a limit on how much risk it is prepared to take and will set a limit on how much leverage it will permit, and would require the acquired asset to be provided as collateral security for the loan. Leveraging enables gains to be multiplied.Brigham, Eugene F., ''Fundamentals of Financial Management'' (1995). On the other hand, losses are also multiplied, and there is a risk that leveraging will result in a loss if financ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Share Capital
A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capital" may also denote the number and types of shares that compose a corporation's share structure. Definition In accounting, the share capital of a corporation is the nominal value of issued shares (that is, the sum of their par values, sometimes indicated on share certificates). If the allocation price of shares is greater than the par value, as in a rights issue, the shares are said to be sold at a premium (variously called share premium, additional paid-in capital or paid-in capital in excess of par). Commonly, the share capital is the total of the nominal share capital and the premium share capital. Most jurisdictions do not allow a company to issue shares below par value, but if permitted they are said to be issued at a discount or part- ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Requirement
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and risk becoming insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets. Capital is a source of funds not a use of funds. Regulations A key part of bank regulation is to make sure that firms operating in the industry are prudently managed. The aim is to protect the firms themselves, their custo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because banks play an important role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalized a system known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, the Basel Accords. Banking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance Italy but in many ways functioned as a continuation of ideas and concepts of credit and lending that had their roots in the a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Insurance Company
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An entity which provides insurance is known as an insurer, insurance company, insurance carrier, or underwriter. A person or entity who buys insurance is known as a policyholder, while a person or entity covered under the policy is called an insured. The insurance transaction involves the policyholder assuming a guaranteed, known, and relatively small loss in the form of a payment to the insurer (a premium) in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms. Furthermore, it usually involves something in which the insured has an insurable interest established by o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Liquidation
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry. Liquidation may either be compulsory (sometimes referred to as a ''creditors' liquidation'' or ''receivership'' following bankruptcy, which may result in the court creating a "liquidation trust") or voluntary (sometimes referred to as a ''shareholders' liquidation'', although some voluntary liquidations are controlled by the creditors). The ter ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Domino Effect
A domino effect or chain reaction is the cumulative effect generated when a particular event triggers a chain of similar events. This term is best known as a mechanical effect and is used as an analogy to a falling row of dominoes. It typically refers to a linked sequence of events where the time between successive events is relatively small. It can be used literally (an observed series of actual collisions) or metaphorically (causal linkages within systems such as global finance or politics). The term ''domino effect'' is used both to imply that an event is inevitable or highly likely (as it has already started to happen), and conversely to imply that an event is impossible or highly unlikely (the one domino left standing). Demonstration of the effect The domino effect can easily be visualized by placing a row of dominoes upright, each separated by a small distance. Upon pushing the first domino, the next domino in line will be knocked over, and so on, thus firing a linear ch ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Base Erosion And Profit Shifting
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic activity, thus "eroding" the "tax-base" of the higher-tax jurisdictions using deductible payments such as interest or royalties. For the government, the tax base is a company's income or profit. Tax is levied as a percentage on this income/profit. When that income / profit is transferred to another country or tax haven, the tax base is eroded and the company does not pay taxes to the country that is generating the income. As a result, tax revenues are reduced and the government is detained. The Organization for Economic Co-operation and Development (OECD) define BEPS strategies as "exploiting gaps and mismatches in tax rules". While some of the tactics are illegal, the majority are not. Corporate tax havens offer BEPS tools to "shift" pr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Sponsor
A financial sponsor is a private-equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions. Sponsors and management In addition to bringing capital to a deal, financial sponsors are expected to bring a combination of capital markets expertise, various important contacts, strategies for operational improvement, and the experience of owning leveraged companies. As the owners of the company, financial sponsors rarely manage a company directly and are most active in issues relating to the company's capital structure and balance sheet as well as strategic initiatives including mergers and acquisitions, joint ventures, and management restructurings. The company's CEO and other senior management maintain responsibility for day-to-day operational issues. Sponsors and other investors Various investor classes look to the financial sponsor to generate value in a company as much as the management or operations of the company. In particular, d ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Leveraged Buyout
A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The use of debt, which normally has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition. The cost of debt is lower because interest payments often reduce corporate income tax liability, whereas dividend payments normally do not. This reduced cost of financing allows greater gains to accrue to the equity, and, as a result, the debt serves as a lever to increase the returns to the equity. The term LBO is usually employed when a financial sponsor acquires a company. However, many corporate transactions are partially funded by bank debt, thus effectively also representing an LBO. LBOs can have many different forms such as management buyout (MBO), ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
