Types of Swap Options

swap optionsSwap options hold particular importance for companies that intend to extend their business internationally. One of the risks related to international business expansion is the fluctuation of interest rates. Changes in interest rates influence the financial performance of an organization in a major way because the extent of the borrowing cost to be paid or received by an organization depends upon the prevailing interest rates. If an unanticipated rise or fall occurs in the interest rates, this may have a significant impact on the cash flow of the organization.

An organization projects its future cash flows in order to evaluate its performance. However, if the interest rates change frequently, the projected cash flows of the organization may not be valid therefore the comparison of the actual performance of the organization with the projected performance may not provide valid results. If an organization holds a loan which is subject to the floating interest prevailing in the market, the finance cost to be paid by the organization will depend upon that prevailing interest rate. The organization will have to bear a lower finance cost if the interest rate falls, however on the other hand, the organization will have to pay a higher amount if the interest rate rises.

Following are some of the swap options that can be utilized by a company to mitigate the risk related to fluctuating interest rates. Continue reading

Significance of Financial Ratios in Evaluating the Financial Performance of a Company

Quality and Price RatioFinancial ratios are considered to be the best tool for evaluating the financial performance of a company. Different financial ratios highlight different aspects of the financial performance of a company. Following is a brief introduction to the ratios that are used in ratio analysis.

Profitability Ratios

Stakeholders of the company are interested in the profitability of the company because the dividend payout depends upon the profit of the company. Therefore, in order to decide whether to continue the investment in a company the stakeholders of the company consider whether they are being benefited by the company.

Gross Profit Margin

Formula:

Gross Profit Margin = Gross Profit/ Total Revenue

Gross profit margin helps the users of the financial statements assess the ability of the company to maintain an efficient difference between the total revenue and the production cost. This ratio indicates whether the company maintains a healthy margin over the sale of its products or services, and whether the cost of production of the company is reasonably low or unacceptably high. Continue reading

How to Find the Best Loan Deals & Options for Your Needs

money-exchanging-handsFrom the outlook, bad credit loans might seem like simple to some individuals but in reality, they are quite complex. A loan may be acquired for a car, a house, a business, or for any other reason. A long term loan is a long term obligation and it is highly important to ensure that this obligation does not turn into an unmanageable stream of cash outflows in the future. There are a number of loan options associated with house loan and this article explores some of those options.

Mortgage Options

House loans are differentiated in accordance with their structure. It is important to consider the structure of the mortgage option before acquiring it. Following are some of the mortgage options:

  • Fixed Rate Mortgage

    Fixed rate mortgage is considered to be the best option because it eliminates the risk related to the fluctuations in the interest rate. The interest rate is determined at the inception of the agreement and it remains the same throughout the term of the loan Continue reading