Cost of capitalIn economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. For an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital.
Capital structureIn corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the company's balance sheet. The larger the debt component is in relation to the other sources of capital, the greater financial leverage (or gearing, in the United Kingdom) the firm is said to have.
DebtDebt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.
Government debtA country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occurs when a government's expenditures exceed revenues. Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt. In 2020, the value of government debt worldwide was $87.
Debt crisisDebt crisis is a situation in which a government (nation, state/province, county, or city etc.) loses the ability of paying back its governmental debt. When the expenditures of a government are more than its tax revenues for a prolonged period, the government may enter into a debt crisis. Various forms of governments finance their expenditures primarily by raising money through taxation. When tax revenues are insufficient, the government can make up the difference by issuing debt.
Private equity firmA private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.
Weighted average cost of capitalThe 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 commonly referred to as the firm's cost of capital. Importantly, it is dictated by the external market and not by management. The WACC represents 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.
Ireland as a tax havenIreland has been labelled as a tax haven or corporate tax haven in multiple financial reports, an allegation which the state has rejected in response. Ireland is on all academic "tax haven lists", including the , and tax NGOs. Ireland does not meet the 1998 OECD definition of a tax haven, but no OECD member, including Switzerland, ever met this definition; only Trinidad & Tobago met it in 2017. Similarly, no EU–28 country is amongst the 64 listed in the 2017 EU tax haven blacklist and greylist.
Tax havenA tax haven is a term, sometimes used negatively and for political reasons, to describe a place with very low tax rates for non-domiciled investors, even if the official rates may be higher. In some older definitions, a tax haven also offers financial secrecy. However, while countries with high levels of secrecy but also high rates of taxation, most notably the United States and Germany in the Financial Secrecy Index ("FSI") rankings, can be featured in some tax haven lists, they are often omitted from lists for political reasons or through lack of subject matter knowledge.
Tax inversionA tax inversion or corporate tax inversion is a form of tax avoidance where a corporation restructures so that the current parent is replaced by a foreign parent, and the original parent company becomes a subsidiary of the foreign parent, thus moving its tax residence to the foreign country. Executives and operational headquarters can stay in the original country. The US definition requires that the original shareholders remain a majority control of the post-inverted company.
Leverage (finance)In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, estimating that future profits will be many times more than the cost of borrowing. This technique is named after a lever in physics, which amplifies a small input force into a greater output force, because successful leverage amplifies the smaller amounts of money needed for borrowing into large amounts of profit. However, the technique also involves the high risk of not being able to pay back a large loan.
Corporation tax in the Republic of IrelandIreland's Corporate Tax System is a central component of Ireland's economy. In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force (paid 50% of Irish salary tax), and created 57% of Irish OECD non-farm value-add. As of 2017, 25 of the top 50 Irish firms were U.S.–controlled businesses, representing 70% of the revenue of the top 50 Irish firms. By 2018, Ireland had received the most U.S. in history, and Apple was over one–fifth of Irish GDP.
Shareholder valueShareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". The term "shareholder value", sometimes abbreviated to "SV", can be used to refer to: The market capitalization of a company; The concept that the primary goal for a company is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the stock price to increase (i.
Adjusted present valueAdjusted present value (APV) is a valuation method introduced in 1974 by Stewart Myers. The idea is to value the project as if it were all equity financed ("unleveraged"), and to then add the present value of the tax shield of debt – and other side effects. Technically, an APV valuation model looks similar to a standard DCF model. However, instead of WACC, cash flows would be discounted at the unlevered cost of equity, and tax shields at either the cost of debt (Myers) or following later academics also with the unlevered cost of equity.
Private equityIn the field of finance, private equity (PE) is an investment fund, usually a limited partnership, which invests in and restructures private companies. A private-equity fund is both a type of ownership of assets (financial equity) and is a class of assets (debt securities and equity securities), which function as modes of financial management for operating private companies that are not publicly traded in a stock exchange.
Risk premiumA risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky return less the risk-free return, as demonstrated by the formula below. Where is the risky expected rate of return and is the risk-free return. The inputs for each of these variables and the ultimate interpretation of the risk premium value differs depending on the application as explained in the following sections.
Corporate havenCorporate haven, corporate tax haven, or multinational tax haven is used to describe a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly due to favourable tax regimes (not just the headline tax rate), and/or favourable secrecy laws (such as the avoidance of regulations or disclosure of tax schemes), and/or favourable regulatory regimes (such as weak data-protection or employment laws).
Trade-off theory of capital structureThe trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger who considered a balance between the dead-weight costs of bankruptcy and the tax saving benefits of debt. Often agency costs are also included in the balance. This theory is often set up as a competitor theory to the pecking order theory of capital structure.
Capital structure substitution theoryIn finance, the capital structure substitution theory (CSS) describes the relationship between earnings, stock price and capital structure of public companies. The CSS theory hypothesizes that managements of public companies manipulate capital structure such that earnings per share (EPS) are maximized. Managements have an incentive to do so because shareholders and analysts value EPS growth.
Debt of developing countriesThe debt of developing countries usually refers to the external debt incurred by governments of developing countries. There have been several historical episodes of governments of developing countries borrowing in quantities beyond their ability to repay. "Unpayable debt" is external debt with interest that exceeds what the country's politicians think they can collect from taxpayers, based on the nation's gross domestic product, thus preventing it from ever being repaid. The debt can result from many causes.
