Corporations reporting negative income may carryback or carryforward these losses into other fiscal years. Sometimes a refund of previously-paid taxes is returned to these companies.
Accounting & Business Finance
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Ethical behavior does more than keep individuals and companies out of trouble. It can have a real impact on the bottom line for stockholders.
Accounting statements provide an accurate view of an organization at any given point in time. Understanding them requires some special knowledge of common accounting practices.
News articles often discuss the effects of taxes on capital gains when a company sells a long-term investment. Investors must understand the concept of capital gains to properly value their effects on firm profitability.
A perpetuity is a special case in which cash flows are expected to go on forever. Valuing a perpetuity or infinite annuity is useful in estimating long-term cash flows.
Current tax laws do not allow a corporation to accumulate large sums of retained earnings in lieu of distributing dividends. Doing so incurs a tax penalty.
The price of a security can be calculated by taking into account all future cash flows associated with the asset. The Net Present Value also takes into account the price of the asset. Learn how the present value of all future cash flows minus the cost of an asset is a measure of net present value.
When a company sells a significant asset, the proceeds are recorded as extraordinary income on the company’s financial statements. This event has two major repercussions to investors.
Money today is not the same as money tomorrow or even yesterday for that matter. The old adage “time is money” is an important concept in financial markets. Learn how the principle of the time value of money affects investors’ decisions in financial markets.
In almost all aspects of life, the largest risks have the largest payoffs. In competitive financial markets, this holds true almost universally. Learn about how investors use the principle of risk return trade off to make wise financial investments.
The concept of diversification suggests that putting all of one’s eggs in one’s basket is a risky decision. Spreading investments over multiple, unrelated securities reduces the likelihood of a sudden, fatal outcome. Learn how investors offset risk with a diversified portfolio.
The balance sheet identity is one the most elementary lessons of accounting. However, students learning introductory accounting often find it difficult to grasp in its standard form. Learn how to rearrange the balance sheet identity to make more sense to the beginning accounting student.
The most valuable asset a firm can own is a new idea. New ideas are the genesis for creating wealth and economic advantage over competitors.
When an investor has the right but not the obligation to do something, that investor has an option. Options are valuable because exercising the option can never be worth less than zero dollars.
Financial decisions made by investors are based on the incremental benefits obtained by deciding to take one action over alternatives. The incremental part is relevant because the investor would not realize the costs and benefits if the action were not taken.
There are three basic forms of business organizations. Learn about the advantages a corporation enjoys over a partnership or sole proprietorship.
Behavior is usually the furthest thought in people’s minds when they think of finance. Yet as a social science, finance is governed by the behavior of people and, generally, people act in their own self-interest to attain financial goals. Learn about self-interested behavior in financial markets.
The Principle of Self-Interest suggests that people act in their own financial self-interest. Yet it must not be forgotten that other people are working in their own self-interest as well. Learn how the principle of two-sided transactions can help you make better investments.