Categories » Calculator Corner
Corporate Treasurers notoriously dislike the use of options. They don’t like paying premium upfront; they don’t like managing the accounting issues and they don’t like the complexity of option valuation. To understand option prices you need to know a little bit of Greek.
Be the first to comment | May 2011
WACC is useful because it is based on rates of return that are determined by the market or observable from published data. This objectivity means that it is a valuable measure of how well a company is creating shareholder value and what its current value is. Internally, it is a crucial variable in assessing the viability of new investments and acquisitions.
Be the first to comment | March 2011
A forward outright is a means of hedging against currency movements by locking in an exchange rate for an FX transaction on a future date. This article outlines how to calculate the forward outright rate.
Be the first to comment | February 2011
The regulations set out in Basel III mean that banks will have to maintain more robust capital reserves and equity buffers than they do at present. The accords, which were passed by the G20 last November, build on the principles established in Basel I and II. Treasurers now need more than a passing acquaintance with these ratios because their banks’ willingness to deal with them will be a direct function of their Basel numbers.
Be the first to comment | February 2011
The asset coverage ratio is used to measure a company’s ability to cover its debt. A high ratio indicates the company is likely to be able to keep operating with current debt and asset levels, whereas a low ratio – for example, below one – makes this less likely.
Be the first to comment | November 2010
EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It measures a company’s profitability by showing how much money the company has made before interest, taxes, depreciation and amortisation have been deducted.
Be the first to comment | October 2010
The working ratio is used to determine whether or not a company is able to recover its operating costs from its annual revenue.
Be the first to comment | September 2010
The solvency ratio is used to measure a company’s ability to meet its long-term debt obligations. A high solvency ratio is usually an indicator of a healthy company with a low probability of defaulting on its debts. The solvency ratio takes into account a company’s post-tax income, excluding any non-cash depreciation expenses, in relation to its total debt obligations.
Be the first to comment | July 2010
Total debt to total assets is one of the ratios used to measure a company’s financial risk. It determines what proportion of the company’s assets is financed by debt. The lower a company’s total debt to total assets ratio, the less leveraged the company is. That is, the less borrowing the company has. This makes the company safer from a creditor’s point of view but provides less return for shareholders. This is because the shareholders are financing a greater proportion of the business.
Be the first to comment | June 2010
Risk-adjusted return on capital (RAROC) is a profitability metric that can be used to analyse return in relation to the level of risk taken on. It can be used to compare the performance of several investments with differing levels of risk exposure. It should not be confused with RORAC (return on risk-adjusted capital) which adjusts the capital invested based on the risks being taken. RAROC instead adjusts the return itself. RAROC was developed by Bankers Trust in the late 1970s and early 1980s in response to regulatory interest in the capital ratios of financial institutions and the implementation of capital adequacy regulations. RAROC is often used by banks to determine the amount of capital required to support the bank’s activities.
Be the first to comment | May 2010