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Goodwill (Accounting): Meaning, How It Works, and How to Calculate

  Goodwill (Accounting): Meaning, How It Works, and How to Calculate Introduction Goodwill in accounting and finance terms is a distinct and intangible asset that denotes the occasion whereby one company buys another company with a transaction that goes above the accrued fair value of assets of the purchased company total net (identifiable assets). It is the appreciation of reputation of any company, customer loyalty, brand recognition, etc., which are non-physical but render earnings ability to earn valuable monetary returns. Goodwill is an important part of a merger or an acquisition and is only noticeable when business combination is eminent. Meaning of Goodwill Goodwill is an intangible asset which emerges when the acquisition price of a company is more than the fair price of that company as indicated by its identifiable net assets value (assets minus liabilities). It contains among the others: Brand value • Customer base Loyal customers • High Quality workforce ...
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GAFAM Stocks: What They Are and Why They Matter

GAFAM Stocks: What They Are and Why They Matter Introduction The tech companies in the contemporary financial world have become the proficient driving force of the global development of the economy and innovations. Out of these, a cluster of five technological powerhouses, namely, Google (Alphabet), Apple, Facebook (Meta), Amazon, and Microsoft, also referred to as GAFAM, it has become the new normal to associate power, profitability and global influence. These are among the most highly valued firms in the world and their presence in the financial market, investments and technological advancement can hardly be overstated.   What does GAFAM Mean? • Google (traded under Alphabet Inc). • Apple Inc. • Facebook (currently referred to as Meta Platforms Inc. • Amazon.com Inc. • Liberty omics biotechnology inc. All these five companies have transformed the digital economy by encompassing invention in software, hardware, cloud computing, intelligent software and artificial intelligence, ele...
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Gross Working Capital: Meaning, How to Calculate, and Comparison with Net Working Capital

Gross Working Capital: Meaning, How to Calculate, and Comparison with Net Working Capital Introduction The phenomenon of working capital is a basic phenomenon in financial management, which indicates the temporary financial health of the company and its solvency in terms of covering the daily operating costs of the company. It is very crucial in safeguarding business continuity, particularly to those companies that have large amounts of transactions in their operations. Gross Working Capital and Net Working Capital are two standard terminologies related to the working capital. Although they are interchangeably used, they have different financial standpoints.   Gross Working Capital Meaning Gross Working Capital is the sum amount of current assets of a company. It is a list of assets that are likely to be turned into cash within one year and that are vital to the smooth operation of the business. The concept neither considers any liabilities nor obligations and is only bas...
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Gearing Ratios: Meaning, Types, and How to Calculate

  Gearing Ratios: Meaning, Types, and How to Calculate 1. Introduction to Gearing Ratios The gearing ratios are the financial parameters employed in the evaluation of the financial leverage of a company. They show the extent of funding of operations of a firm through debt financing versus equity financing. Putting it in a simpler terminology, gearing indicates the proportion of money borrowed (debt) and the capital (equity) of the owner of the business. A high gearing level implies that the company uses a lot of leverage in its capital structure whereas low gearing level indicates that the company uses more shareholder funds. The level of gearing in a company is imperative to understand since it has an influence on risk, return, and financial stability. 2. Importance of Gearing Ratios in Finance Gearing ratios play a very important role in financial analysis particularly in the analysis of a risk profile of a company. These ratios are closely watched by creditors, investo...
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Gross Rate of Return: Meaning, Formula, and Difference from Net Return

  Gross Rate of Return: Meaning, Formula, and Difference from Net Return Gross rate of return is a key idea in the financial and investment field. Before any deductions are applied, it stands for how much an investment has returned. The return consists of funds gained through interest, dividends, and capital gains. Basically, it shows the actual increase in the money an investment earned during a given period. Overall performance and how much money an asset can earn are indicated by gross return. It is what the investment brings in before deducting all the costs it incurs to be invested and kept. As gross return comes first, it is usually larger than the net return after outgoing expenses are counted. Components of Gross Rate of Return There are several parts that make up the gross rate of return. • Interest from bonds, dividends on stocks, and rental income together may generate you an income from your property investments. • Rising value of the asset over the years increase...
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Gross Profit: Meaning and How to Calculate It

  Gross Profit: Meaning and How to Calculate It It is very important to consider gross profit because it shows how effective the main business operations are. It means the money remaining with a company after taking away the costs of making its products or services. When items are sold, the expenses such as raw materials, direct labour, and direct costs used in production are combined and referred to as COGS. Gross profit reveals useful information about the company’s operations. It helps assess the company’s profitability and is one of the main factors in understanding its financial results. A positive gross profit shows that a company gets more money from its sales than it pays for the products sold. A company’s gross profit helps show if it is controlling its production costs compared to its sales. This step highlights the money earned from the production process, and it leaves out other indirect costs that are included in the income statement’s later sections. The deduction o...
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Estimating the Cost of Debt (Kd) in Financial Valuation

  Estimating the Cost of Debt (Kd) in Financial Valuation When a company makes investment and financing decisions, getting the cost of capital right is very important. The cost of capital includes an essential figure, the Cost of Debt (Kd) which measures the cost a company has to pay when borrowing money. Making decisions on how to finance a company’s debts helps determine whether a project can be accomplished successfully, how much risk is involved and what to expect from discounted cash flow analysis. What is Cost of Debt? The cost of debt is the actual rate a company spends on money it borrows. This shows the interest rate the organization has to pay to settle its debts. Taking on debt leads to extra expenses that impact a company’s finances and cash flow. We should keep in mind that figuring out the real cost of debt requires adjusting interest for the tax savings that are earned. This is due to the fact that interest payments can be deducted from taxes which makes the ...
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