To monitor business performance, investors measure the amount of profit a company has earned as a percentage to the total capital employed. This financial ratio is known as return on capital employed or ROCE.Return on Capital Employed (ROCE) of a company tells you whether the profit is sufficient considering the amount of equity and long-term debt invested to earn … [Read more...] about How to calculate return on capital employed – ROCE
Capital expenditure Vs. revenue expenditure – What is the difference
When a business makes a purchase, depending on certain factors, it's either considered as capital expenditure or revenue expenditure. To understand the concept, there are basically two areas where money is spent in an organization;In this article, we will explain how expenditures are considered as capital expenditure or revenue expenditure and what is the difference … [Read more...] about Capital expenditure Vs. revenue expenditure – What is the difference
What is company’s capital structure and why it matters
A business can grow by investing in new plants and equipment for expansion or to enhance its capacity. To fund its expansion, the company has two choices; borrow additional funds from banks or financial institutions or to raise capital by selling additional ownership interests. Both methods have advantages and disadvantages. Management should combine both type of financing to … [Read more...] about What is company’s capital structure and why it matters
What is financial leverage and how it impacts business decisions
Financial leverage means use of debt or borrowed capital to finance business, acquire additional assets or to increase profit. Financing a business depends on the capital structure of the company. Capital structure means the mixture of debt and equity financing to the business.Equity financing does not create any obligations on the company. However, debt financing obligates … [Read more...] about What is financial leverage and how it impacts business decisions
How to calculate weighted average cost of capital for a company
Weighted average cost of capital of a company is determined as the weighted average of a company's cost of equity and cost of debt blended together. In finer terms, it represents the rate of return that a project must have in order to attract investors to invest capital. WACC is also termed as cutoff rate or minimum rate of return or financing rate of return.WACC depends on … [Read more...] about How to calculate weighted average cost of capital for a company