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what is liabilities to asset ratio

What Is Liabilities To Asset Ratio?

By Andrew Stotz

The liability to asset ratio is also known as the debt to asset ratio. It shows the percentage of assets that are being funded by debt.

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what is the agency problem

What is the Agency Problem?

By Andrew Stotz

In corporate finance, the agency problem is considered as the conflict of interest between the company’s managers and its stockholders. These conflicts of interest occur when personal interests are given a priority over the professional duties each party needs to fulfill.

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what is arbitrage pricing theory

What Is Arbitrage Pricing Theory?

By Andrew Stotz

The Arbitrage Pricing Theory is a method used to estimate the returns on assets and portfolios. It is a model based on the linear relationship between an asset’s expected risk and return.

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what is the modigliani miller theorem

What is the Modigliani–Miller Theorem?

By Andrew Stotz

The Modigliani-Miller Theorem suggests that a company’s capital structure and the average cost of capital does not have an impact on its overall value. 

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what is the gordon growth model

What is the Gordon Growth Model?

By Andrew Stotz

The Gordon growth model, or GGM, is used to calculate the intrinsic value of a stock from future dividends. The model only works for companies that pay out dividends, which have a constant growth rate.

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what is modern portfolio theory

What is Modern Portfolio Theory and Portfolio Risk?

By Andrew Stotz

Modern Portfolio Theory is a theory presented by Harry Markowitz (1952) on how risk-averse investors can create portfolios to maximize the return on investments based on the optimal level of risk.

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what is stock valuation

What Is Stock Valuation?

By Andrew Stotz

When investing in a stock, it’s essential to know what the present value of all future cash flows is. This is known as finding the intrinsic value of a stock.
With this value, you can identify whether a stock is overvalued, undervalued, or is at market price.

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what is capital budgeting

What Is Capital Budgeting?

By Andrew Stotz

Capital budgeting is a process that helps determine whether a firm should invest in something or not. When businesses want to buy new long term assets such as new machinery or start a new project, it is imperative to consider if it would be worth it or not. 

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what is optimal capital structure

What Is Optimal Capital Structure?

By Andrew Stotz

The optimal capital structure of a firm is the right combination of equity and debt financing. It allows the firm to have a minimum cost of capital while having the maximum market value.

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what is compound interest

What Is Compound Interest?

By Andrew Stotz

Compound interest is the interest on the initial principal as well as the interest from the prior periods. It is also referred to as interest on interest.

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