Financial Asset What Does Financial Asset Mean? An asset that derives value because of a contractual claim.

Stocks, bonds, bank deposits, and the like are all examples of financial assets. Definition: Financial Assets include cash and bank accounts plus securities and investment accounts that can be readily converted into cash. Excluded are illiquid physical assets such as real estate, automobiles, art, jewelry, furniture, collectibles, etc., which are included in calculations of Net Worth. Real Assets vs Financial Assets An article by Hajara Saleeth No Comments

Real asset can be defined as assets that are tangible or physical in nature such as property, plants and equipments.As an example in our bank many real assets can be identified such as the buildings, computers, lands that we own, ATM machines, vehicles, machineries such as note counters and etc. Financial assets can be defined as assets in the form of stocks, bonds, rights, certificates, bank balances, etc., as distinguished from tangible, physical assets (Pension Boards-UCC, 2009). For our bank financial assets can be identified as our investments in bonds issued government and companies, bills issued by government and companies, shares of other companies and debentures of other companies, loans we have lent, reserves we hold at Central bank and etc. Real assets are tangible and financial assets are intangible in nature. Real assets are used in day to business operations to produce/generate an output where as financial assets are used to generate a return by investing activities. In general by investing in real assets company generates an income by way of profits earned from production utilizing the asset, rent (from lands) and gain/loss on disposals. By investing in financial assets company earns dividends, interest income and capital gains/loss upon disposal of assets. Over-the-counter (finance) From Wikipedia, the free encyclopedia This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2010) Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges), such as futures exchanges or stock exchanges. Over-The-Counter - OTC What Does Over-The-Counter - OTC Mean? A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.

Investopedia explains Over-The-Counter - OTC In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone. Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records. Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes. ver-the-counter market, trading in stocks and bonds that does not take place on stock exchanges; such trading is most significant in the United States, where requirements for listing stocks on the exchanges are quite strict. It is often called the off-board market, and sometimes the unlisted market, though the latter term is misleading because some securities so traded are listed on an exchange. Over-the-counter trading is most often accomplished by telephone, telegraph, or leased private wire. In this market, dealers frequently buy and sell for their own account and usually specialize in certain issues. Schedules of fees for buying and selling securities are not fixed, and dealers derive their profits from the markup of their selling price over the price they paid. The investor may buy directly from a dealer willing to sell stocks or bonds that he owns or with a broker who will search the market for the best price. Capital Structure What Does Capital Structure Mean? A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure. Investopedia explains Capital Structure A company's proportion of short and long-term debt is considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-toequity ratio, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc.

Weighted average cost of capital From Wikipedia, the free encyclopedia The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. Companies raise money from a number of sources: common equity, preferred equity, straight debt, convertible debt, exchangeable debt, warrants, options, pension liabilities, executive stock options, governmental subsidies, and so on. Different securities, which represent different sources of finance, are expected to generate different returns. The WACC is calculated taking into account the relative weights of each component of the capital structure. The more complex the company's capital structure, the more laborious it is to calculate the WACC. Decision Making in Capital Structure A primary goal of capital structure decision making is to create the lowest and most stable Weighted Average Cost of Capital, or WACC, within defined levels of risk tolerance. Since WACC includes both the costs of debt and equity capital and the relative proportions of both in forming an organizations capital structure, WACC is influenced by target credit profile (leverage, liquidity, and cash flow) in addition to debt structure. Importantly, since WACC is the cost of the capital used to fund an organizations assets, WACC sets the bar for accretive returns on existing assets as well as for new investments. Inflation is the enemy. Much of a health-care organizations expense structure is highly exposed to inflation risk, for example, labor and supply expense. Cost of capital is one of the few expense categories that can insulate an organization from inflation risk, for example, through long-term fixed rate structures or asset/liability matching. Capital structure decisions are risk management decisions. Capital structure decisions necessarily incorporate myriad decisions regarding organizational risk, strategic risk, risks associated with financing structure and terms, and investment risk. An informed and systematic view of these risk areas is essential in making good capital structure decisions. Incremental capital structure decisions should be based on a clearly articulated and coherent long-term capital structure philosophy and goal framework shared by both management and the board.