AAA |

DEFINITION OF 'STOP-LOSS ORDER'

An order placed with a broker to sell a security when it reaches a certain price.
A stop-loss order is designed to limit an investors loss on a position in a
security. Although most investors associate a stop-loss order only with a long
position, it can also be used for a short position, in which case the security
would be bought if it trades above a defined price. A stop-loss order takes the
emotion out of trading decisions and can be especially handy when one is on
vacation or cannot watch his/her position. However, execution is not
guaranteed, particularly in situations where trading in the stock is halted or
gaps down (or up) in price. Also known as a stop order or stop-market
order.
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INVESTOPEDIA EXPLAINS 'STOP-LOSS ORDER'

With a stop-loss order for a long position, a market order to sell is triggered
when the stock trades below a certain price, and it will be sold at the next
available price. This type of order works well if the stock or market is declining
in an orderly manner, but not if the decline is disorderly or sharp.
For example, if you own shares of ABC Co., which is currently trading at $50,
and want to hedge against a big decline, you could enter a stop-loss order to
sell your ABC holdings at $48. This type of stop-loss order is also called a sellstop order. If ABC trades below $48, your stop-loss order is triggered and
converts into a market order to sell ABC at the next available price. If the next
price if $47.90, your ABC shares would be sold at $47.90.

But what if ABC closes at $48.50 one day, and then reports weak quarterly
earnings after market close? If the stock gaps down, and opens at $44.90 the
next day, your stop-loss order would be automatically triggered and your
shares sold at the next available price, say $45. In this case, your stop-loss
order did not work out as you expected, since your loss on ABC is 10% rather
than the 4% you had expected when you placed the stop-loss order.
This is a major drawback of stop-loss orders, and is a reason why experienced
investors use stop-limit orders instead of stop-market orders. Stop-limit orders
seek to sell the stock at a specified limit price rather than the market price
once a specified price level is breached. Although stop-limit orders will also not
work if the stock is halted down or has a price gap, the risk of the long position
being sold at a significantly lower price than the specified stop price is lower
than with a stop-market order.
Note that these orders can also be used to protect unrealized gains, although
in this case it would be more accurate to refer to them as stop orders rather
than stop-loss orders.

Covered Call
DEFINITION OF 'COVERED CALL'
An options strategy whereby an investor holds a long position in an asset and
writes (sells) call options on that same asset in an attempt to generate
increased income from the asset. These is often employed when an investor
has a short-term neutral view on the asset and for this reason holds the asset
long and simultaneously have a short position via the option to generate
income from the option premium.
This is also known as a "buy-write".

INVESTOPEDIA EXPLAINS 'COVERED CALL'

For example, let's say that you own shares of the TSJ Sports Conglomerate
and like its long-term prospects as well as its share price but feel in the shorter
term the stock will likely trade relatively flat, perhaps within a few dollars of its
current price of, say, $25. If you sell a call option on TSJ for $26, you earn the
premium from the option sale but cap your upside. One of three scenarios is
going to play out:
a) TSJ shares trade flat (below the $26 strike price) - the option will expire
worthless and you keep the premium from the option. In this case, by using
the buy-write strategy you have successfully outperformed the stock.
b) TSJ shares fall - the option expires worthless, you keep the premium, and
again you outperform the stock.
c) TSJ shares rise above $26 - the option is exercised, and your upside is
capped at $26, plus the option premium. In this case, if the stock price goes
higher than $26, plus the premium, your buy-write strategy has
underperformed the TSJ shares.

Butterfly Spread
DEFINITION OF 'BUTTERFLY SPREAD'
A neutral option strategy combining bull and bear spreads. Butterfly spreads
use four option contracts with the same expiration but three different strike
prices to create a range of prices the strategy can profit from. The trader sells
two option contracts at the middle strike price and buys one option contract at
a lower strike price and one option contract at a higher strike price. Both puts
and calls can be used for a butterfly spread.

INVESTOPEDIA EXPLAINS 'BUTTERFLY SPREAD'

Butterfly spreads have limited risk, meaning you can only lose your initial
investment. Your maximum return is when the price of the underlying asset
remains around the middle strike price.

Beta
DEFINITION OF 'BETA'
A measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole. Beta is used in the capital asset pricing
model (CAPM), a model that calculates the expected return of an asset based
on its beta and expected market returns.
Also known as "beta coefficient."

INVESTOPEDIA EXPLAINS 'BETA'

Beta is calculated using regression analysis, and you can think of beta as the
tendency of a security's returns to respond to swings in the market. A beta of 1
indicates that the security's price will move with the market. A beta of less than
1 means that the security will be less volatile than the market. A beta of
greater than 1 indicates that the security's price will be more volatile than the
market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile
than the market.
Many utilities stocks have a beta of less than 1. Conversely, most high-tech,
Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a
higher rate of return, but also posing more risk.

Rights Offering (Issue)

DEFINITION OF 'RIGHTS OFFERING (ISSUE)'
An issue of rights to a company's existing shareholders that entitles them to
buy additional shares directly from the company in proportion to their existing
holdings, within a fixed time period. In a rights offering, the subscription price
at which each share may be purchased in generally at a discount to the
current market price. Rights are often transferable, allowing the holder to sell
them on the open market.

INVESTOPEDIA EXPLAINS 'RIGHTS OFFERING

(ISSUE)'
For example, a company whose stock is trading at $20 may announce a rights
offering whereby its shareholders will be granted one right for each share held
by them, with four rights required to buy each new share at a subscription
price of $19. The company will also specify that the rights expire on a certain
date, which is usually anywhere from one to three months from the date of
announcement of the rights offering.
Companies typically issue rights to give their existing shareholders the
opportunity to buy additional shares before other buyers, and also to enable
current shareholders to maintain their proportionate stake in the company.

DEFINITION of 'Operating Leverage'

A measurement of the degree to which a firm or project incurs a combination of fixed and
variable costs.

1. A business that makes few sales, with each sale providing a very high gross margin,
is said to be highly leveraged. A business that makes many sales, with each sale
contributing a very slight margin, is said to be less leveraged. As the volume of sales in a
business increases, each new sale contributes less to fixed costs and more to
profitability.
2. A business that has a higher proportion of fixed costs and a lower proportion of
variable costs is said to have used more operating leverage. Those businesses with
lower fixed costs and higher variable costs are said to employ less operating leverage.

INVESTOPEDIA EXPLAINS 'Operating Leverage'

The higher the degree of operating leverage, the greater the potential danger from
forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be
magnified into large errors in cash flow projections. The opposite is true for businesses
that are less leveraged. A business that sells millions of products a year, with each
contributing slightly to paying for fixed costs, is not as dependent on each individual sale.
For example, convenience stores are significantly less leveraged than high-end car
dealerships.

What is the difference

between operating leverage
and financial leverage?
By InvestopediaAAA |

A:
Operating leverage and financial leverage both magnify the changes that
occur to earnings due to fixed costs in a companys capital structures.

Operating leverage magnifies changes in earnings before interest and taxes

(EBIT) as a response to changes in sales when a company's operational costs
are relatively fixed. Financial leverage magnifies how earnings per share
(EPS) change as a response to changes in EBIT where the fixed cost is that of
financing, specifically interest costs.
Operating leverage measures the extent to which a company or specific
project requires some aggregate of both fixed and variable costs. Fixed costs
are those not altered by an increase or decrease in the total number of goods
or services a company produces. Variable costs are those that vary in direct
relationship to a companys production -- variable costs rise when production
increases and fall when production decreases. Businesses with higher ratios
of fixed costs to variable costs are characterized as using more operating
leverage, while businesses with lower ratios of fixed costs to variable costs
use less operating leverage. Utilizing a higher degree of operating leverage
increases the risk of cash flow problems resulting from errors in forecasts of
future sales.
The degree of financial leverage (DFL) measures a percentage change of
earnings per share for each units change in EBIT that result from a company's
changes in its capital structure. Earnings per share become more volatile
when the DFL is higher. Financial leverage magnifies earnings per share and
returns because interest is a fixed cost. When a company's revenues and
profits are on the rise, this leverage works very favorably for the company and
for investors. However, when revenues or profits are pressured or falling, the
exponential effects of leverage can become problematic.

Corporate Finance - Financial

Leverage
Financial leverage can be defined as the degree to which a company uses fixed-income
securities, such as debt and preferred equity. With a high degree of financial leverage
come high interest payments. As a result, the bottom-line earnings per share is
negatively affected by interest payments. As interest payments increase as a result of

increased financial leverage, EPS is driven lower.

As mentioned previously, financial risk is the risk to the stockholders that is caused by an
increase in debt and preferred equities in a company's capital structure. As a company
increases debt and preferred equities, interest payments increase, reducing EPS. As a
result, risk to stockholder return is increased. A company should keep its optimal capital
structure in mind when making financing decisions to ensure any increases in debt and
preferred equity increase the value of the company.
Degree of Financial Leverage
This measures the percentage change in earnings per share over the percentage
change in EBIT. This is known as "degree of financial leverage" (DFL). It is the measure
of the sensitivity of EPS to changes in EBIT as a result of changes in debt.
Formula 11.19

IT
IT-interest

A shortcut to keep in mind with DFL is that, if interest is 0, then the DLF will be equal to
1.
Example: Degree of Financial Leverage
With Newco's current production, its sales are $7 million annually. The company's
variable costs of sales are 40% of sales, and its fixed costs are $2.4 million. The
company's annual interest expense amounts to $100,000 annually. If we increase
Newco's EBIT by 20%, how much will the company's EPS increase?
Answer:
The company's DFL is calculated as follows:
DFL = ($7,000,000-$2,800,000-$2,400,000)/($7,000,000-$2,800,000-$2,400,000$100,000)
DFL = $1,800,000/$1,700,000 = 1.058
Given the company's 20% increase in EBIT, the DFL indicates EPS will increase 21.2%.

DEFINITION of 'Comprehensive Income'

The change in a company's net assets from nonowner sources over a specified period of
time. Comprehensive income is a statement of all income and expenses recognized
during that period. The statement includes revenue, finance costs, tax expenses,
discontinued operations, profit share and profit/loss.

INVESTOPEDIA EXPLAINS 'Comprehensive Income'

Companies typically report comprehensive income in a separate statement from income
resulting from owner changes in equity, but have the option of providing information in a
single statement. Many firms shy away from the single statement approach because it
mixes owner and non-owner activity, which can muddle the underlying information.

How do you find the level of EBIT where EPS

doesn't change?
One of the primary valuation metrics used by investors to assess a business'
worth and financial stability is earnings per share (EPS). EPS reflects a
company's net income divided by the number of common shares outstanding.
EPS, of course, largely depends on a company's earnings. For the purposes
of EPS calculation, earnings before interest and taxes (EBIT) is used because
it reflects the amount of profit that remains after accounting those expenses
necessary to keep the business going. EBIT is also often referred to as
operating income.
The relationship between EBIT and EPS is as follows:
EPS = (EBIT - Debt Interest) * (1 - Tax Rate) - Preferred Share Dividends /
Number of Common Shares Outstanding

When assessing the relative effectiveness leverage versus equity financing,

companies look for the level of EBIT where EPS remains unaffected, called
the EBIT-EPS break-even point. This calculation determines how much
additional revenue would need to be generated in order to maintain a constant
EPS under different financing plans.
To calculate the EBIT-EPS break-even point, rearrange the EPS formula:
EBIT = (EPS * Number of Common Shares Outstanding) + Preferred Share
Dividends / (1 - Tax Rate) + Debt Interest
For example, assume a company generates $150,000 in earnings and is
financed entirely by equity capital in the form of 10,000 common shares. The
corporate tax rate is 30%. The company's EPS is ($150,0000 - 0) * (1 - 0.3) +
0 / 10,000, or $10.50. Now assume the company takes out a loan of $10,000
with a 5% interest rate and sells an additional 10,000 shares. To calculate the
level of EBIT where EPS remains stable, simply input the debt interest, current
EPS and updated shares outstanding values and solve for EBIT: ($10.50 *
20,000) + 0 / (1 - 0.3) + $500 = $300,500. Under this financing plan, the
company must more than double its earnings to maintain a stable EPS.

DEFINITION of 'Zombies'
Companies that continue to operate even though they are insolvent or near bankruptcy.
Zombies often become casualties to the high costs associated with certain operations,
such as research and development. Most analysts expect zombie companies to be
unable to meet their financial obligations.
Also known as the "living dead" or "zombie stocks".

INVESTOPEDIA EXPLAINS 'Zombies'

Because a zombie's life expectancy tends to be highly unpredictable, zombie stocks are
extremely risky and are not suitable for all investors. For example, a small biotech firm
may stretch its funds extremely thin by concentrating its efforts in research and
development in the hope of creating a blockbuster drug. If the drug fails, the company

can go bankrupt within days of the announcement. On the other hand, if the drug is
successful, the company could profit and reduce its liabilities. In most cases, however,
zombie stocks are unable to overcome the financial burdens of their high burn rates and
most eventually go bankrupt.
Given the lack of attention paid to this group, there can often be interesting opportunities
for investors who have a high risk tolerance and are seeking speculative opportunities.

DEFINITION of 'Dove'
An economic policy advisor who promotes monetary policies that involve the
maintenance of low interest rates, believing that inflation and its negative effects will
have a minimal impact on society. This term is derived from the docile and placid nature
of the bird of the same name, and is the opposite of the term "hawk".
Statements that suggest that inflation will have a minimal impact are called "dovish".

INVESTOPEDIA EXPLAINS 'Dove'

Doves prefer low interest rates as a means of encouraging growth within the economy
because this tends to increase demand for consumer borrowing and spur consumer
spending. As a result, doves believe the negative effects of low interest rates are
negligible in the larger scheme of things. However, if interest rates are kept low for an
indefinite period of time, inflation could rise considerably.

Why Israel Is Attracting

Chinese Investors

In June 2014, the UN Conference on Trade and Development forecast (pdf)

that outflows of foreign direct investment from China would surpass inflows to
the country within two or three years. That moment, when it comes, will mark a
dramatic shift: in 2000, foreign direct investment in China amounted to about
$40 billion, while China's investment abroad was negligible.
The Asian Infrastructure Investment Bank is a concrete example of China's
new position as one of the world's economic leaders, rather than just its
factory. The institution, a newcomer to a field long dominated by the IMF, the
World Bank, and the Asian Development Bank, has signed on most of the
developed world, including many American allies, despite vocal objections
from the White House. Besides being a diplomatic coup for China, the
situation is widely seen as an embarrassing misstep for the United States.
Other examples of China's growing clout abound. Peru, Brazil, Venezuela, and
Argentina now trade more with China than the United States; 2,500 Chinese
companies operated in Africa in 2013. This expansion has met with some
resistance: Michael Sata, the late president of copper-rich Zambia, won the

2011 election largely based on his anti-China platform. But the trend is clear
enough.

CHINESE INVESTMENT IN ISRAEL

One recipient of Chinese investment provides some interesting nuance to the
picture: Israel. China became the country's third-largest trading partner in
2013, behind the EU and the United States. That year, Ohad Cohen of Israel's
Economy Ministry estimated that Chinese investment made up $4 billion out of
an overall $32 billion in foreign direct investment, up from nothing in 2011.
Chinese investors are increasingly active in the country's tech sector, through
both Chinese and Israeli investment funds. As of September 2014, the Ping
An Insurance Group, a Chinese conglomerate, had invested in six Israeli startups through a $100 million fund it set up the previous November. Chinese tech
giant Baidu (BIDU) has partnered with Israel's Carmel Venture Fund. Among
the partnership's beneficiaries is Tonara, an Israeli start up whose apps help
aspiring musicians practice more effectively.
Chinese attention is not solely focused on Israel's tech sector. Tsing Capital
has said it would invest in Israeli clean energy ventures. Partly in response to
Chinese consumers' budding taste for dairy products, Bright
Food acquired Israel's largest food maker, Tnuva, for $1.1 billion. Some in
Israel question the wisdom of that particular sale. Shelly Yachimovich, a Labor
member of the Knesset, asked, "What normal country puts its food security
and its entire milk industry in the hands of China?" Tnuva company had been
British-owned since 2007.

FROM ISRAEL'S PERSPECTIVE

For Israel, China's piqued interest comes at a convenient time. In response to
last summer's war in Gaza and the growing presence of Jewish settlements in
the West Bank, condemnation of Israel's policies has spread to the political
mainstream.
In October, Sweden became the third EU member state to
officially recognize the state of Palestine, followed by a spate of symbolic
resolutions from other EU members and the European Parliament.

Palestine joined the International Criminal Court in April, in hopes of bringing

charges against Israeli officials. Calls to boycott Israeli companies have
intensified. Diplomatic spats over the Iranian nuclear deal, exacerbated by
fractious domestic politics in both Israel and the United States, have strained
relations between Prime Minister Netanyahu and President Obama (although
that issue has an expiration date).
Israel continues to enjoy strong strategic alliances with the United States and
Europe, which continue to take priority over Israel's ties to China. But given the
pushback Israel's policies are generating; China's couldn't-care-less approach
to the situation in Palestine makes it a welcome alternative source of capital
from an Israeli perspective. Ophir Gore, trade attach at the Israeli embassy in
Beijing, told the Financial Times that in some parts of the world, mentioning
Israel brings "other things" to mind; in China, on the other hand, "they think
innovation, and they think high technology - so in that aspect, my job here is
pretty easy."

FROM CHINA'S PERSPECTIVE

That China would invest heavily outside its borders is not surprising. It is the
single most populous nation on earth and an industrial powerhouse, requiring
staggering amounts of resources. This need helps to explain Chinese
investments in commodity-rich African and Latin American countries.
Israel, however, is different. The "start-up nation" is famously
techy, spending the second most of any country on research and development
as a share of GDP. Excepting the Tuna acquisition, the bulk of Chinese
investment in Israel has gone into the tech sector. China is investing in
knowledge and innovation rather than fuel for its industrial engine. As signs
increasingly point to slowing growth, Chinese business leaders are beginning
to eye a post-industrial future.
THE BOTTOM LINE

Chinese investment in Israel is accelerating, with tech companies as the main

beneficiaries. As relations with Western democracies falter, the addition of an
alternate stream of capital is welcome news for Israel. Meanwhile, though
much of China's investment abroad has been focused on resource-rich

countries like Peru or Zambia, the flow of Chinese investment into Israel's
knowledge-based economy shows there is another side to the story.

MBA or CFA: Which is Best

for a Career in Finance?
By Joseph A. DallegroAAA |
Financial advisors, stock brokers and investment professionals of all stripes
swim in a sea of designations and certificates. Because each title comes with
its own three- or four-letter abbreviation, the designations are known as the
"alphabet soup" of the investment advice industry.
Two of the most strenuous but financially rewarding titles are the Master of
Business Administration, MBA, and the Chartered Financial Analyst, CFA. A
potential financial advisor or anyone considering a career in finance or
investing should consider their differences.
The question is whether to invest the time, resources and money in an MBA or
CFA. Both are valuable, but there are clear differences between them.

THE MBA
The MBA takes two years of full-time study, with classes covering various
aspects of running a business. Courses range from human resources to
accounting, from marketing and sales to managing operations, supply chains
and technology. The CFA, on the other hand, is specifically meant for those
pursuing careers in finance or investing and requires passing a series of three
grueling exams rather than taking full or part-time classes. (For more,
see: Should You Get a CFA, MBA or Both?)
First, the MBA. Students get MBAs in specific topics such as healthcare,
communications, information systems technology depending on which field

most interests them. These degrees still stress broad knowledge of core
business concepts.
Watch out, because getting an MBA is usually pricey. Not only are students
paying for two years of full-time graduate school, or its part-time equivalent,
but they're also missing out on potential earnings during that time.

MBA COST AND POTENTIAL REWARD

A two-year MBA program can cost upwards of $111,000 from a top business
school, not counting room, board, books and peripheral expenses. The New
America Foundation found the average debt load for an MBA graduate in 2012
was $42,000. Also consider the effects of any wages you forgo while in school.
Of course, financial aid can reduce this burden somewhat, and some
corporations will assume a portion of expenses for employees seeking an
MBA.
The return on your investment, however, might make it worthwhile. Average
starting salaries for those with MBAs is more than $50,000, according
to Payscale, and those with 10 to 19 years of experience average more than
$98,000. Getting an MBA from a well-regarded school can make you more
attractive to employers because it demonstrates drive and work ethic. It also
provides life-long professional contacts with scores of other Type A
overachievers with whom you've shared a long, tough challenge. (For more,
see: What's the Average Salary for an MBA Graduate?)
If you want a management role at a large company or those in areas like
marketing, consulting, finance, or investment banking, you'd do well to at least
consider getting an MBA. Health care is another field where mid- and uppermanagement is increasingly populated with MBAs to better cope with changes
in insurance, government regulation and patient record keeping standards.
(For more, see: The Real Cost of an MBA.)

THE CFA
The CFA designation, first introduced in 1963, provides those who pass three
exams, known as charter holders, with specialized skills like investment
analysis, portfolio strategy and asset allocation. It is less general than an MBA

and quite coveted by investment professionals. Regulatory bodies in 27

countries recognize the charter as a proxy for meeting certain licensing
requirements, according to the CFA Institute, which administers the test and
awards the certification. (For more, see: An Introduction to the CFA
Designation.)
Financially, getting a CFA is a comparative bargain compared to earning an
MBA, as the program is based on self-study and not going to class. The only
required expense being exam fees. These costs vary depending on how early
you register, but standard fees are $825 for each test, plus a one-time
enrollment fee of $450.

GRUELING AND TIME CONSUMING

While affordable, the time requirement to earn a CFA is substantial.
CFA exams have three sections, which take six hours each. You must pass
each section before proceeding to the next. The first section, Level I, is offered
in December and June, while sections II and III are only offered in June.
That means if a candidate passes every part in their first attempt, pursuing the
CFA is still at least a 19-month journey.
Indeed, the CFA Institute says candidates usually spend more than 300 hours
of study for each section and that the average candidate takes four years to
pass every section. Pass-rates for each section are only 40%-65% in a given
year, making the CFA one of the most gruelling tests you're likely to face. Pay
scale puts the national average salary for a CFA at $80,000, according to its
surveys.
In fact, the general consensus is that the CFA exam is harder to pass, and
requires more study, than the CPA exam. And that exam is hardly a cake-walk.
Forum commentators on the CPA information and review
site Another71 familiar with both exams generally view the CFA as the greater
challenge requiring more study time. They note though, that as the CFA exam
includes audit problems, those with an accounting background have an
advantage in taking it.

A FEATHER IN YOUR CAP

What sort of professionals might choose to get a CFA? The most traditional
career paths for which the CFA charter has been most relevant are for
research analysts and those who might go on to be portfolio managers, said
Stephen Horan, Ph.D., CFA, CIPM, managing director and co-lead for
education at the CFA Institute. The charter, however, is a generalist
investment credential. Increasingly, it is a useful resource for a wide range of
careers, such as traders, brokers, academics, risk managers, regulators and
chief executives. These non-traditional roles are the single largest category of
charter holders.
Some motivated individuals pursue both MBAs and CFAs. An MBA and the
CFA program are complimentary in many ways, Horan noted. Traditional
MBA programs are more broad than the CFA program, covering topics such as
management, marketing, and strategy, while the CFA program provides
deeper coverage of investment management than typical MBA programs. Most
MBA programs teach principles of finance, particularly corporate finance, but
do not delve deeply into sophisticated issues like derivative securities, hedging
strategies, portfolio management and wealth planning. The CFA program
synthesizes application in these areas.Having both an MBA and CFA is
especially valuable for portfolio and corporate manager positions, Horan
added. Charter holders are increasingly working in corporate finance roles
that would naturally be populated by MBAs.
The average age of a CFA program candidate is 29, though it's been trending
younger as students frequently enter the program in their last year of school or
shortly thereafter. Some graduate schools teach the CFA program within their
MBA coursework, allowing students to both obtain a degree and prepare for
the certification at almost the same time.
THE BOTTOM LINE

In the end, both the MBA and CFA are valuable. The CFA, however, is widely
coveted by professional investors who work at money managers and
registered investment advisors, the types of firms that many financial advisors
get their first jobs and initial training and background. One of Another71's
commentators summed it up well in noting that all these certifications are just

tools that help you stand out a bit. Don't forget experience and networking
trumps most certifications by themselves.

DEFINITION of 'Bagel Land'

A slang term that represents a stock or other security that is approaching $0 in price.
Arriving in bagel land is usually the result of one or more major business problems that
may not be resolvable. This term is typically used to describe an asset that has fallen
from grace as opposed to a penny stock or other historically cheap security.

INVESTOPEDIA EXPLAINS 'Bagel Land'

If a stock or other asset is headed toward bagel land or is approaching $0 (resembling
the hole in the middle of a bagel), investors generally feel that the security is nearly
worthless. In such cases, a company may be nearing bankruptcy or facing major
solvency issues. While returning from bagel land is possible, the likelihood that equity
investors will lose their entire stakes in the company becomes very high.

EBIT-EPS Capital Structure Approach

The EBIT-EPS capital structure approach focuses on finding a capital structure with the
highest EPS (earnings per share) over the expected range of EBIT (earnings before
interest and taxes).
The reason why we are interested in finding a capital structure which will permit
maximization of the EPS over the expected range of EBIT is because it partially helps us
to achieve the ultimate objective of the enterprise. The ultimate objective of the
enterprise is to maximize shareholders wealth by maximizing its stock price. Two key
variables that affect stock price are return (earnings attributed to owners of the
enterprise) and risk (which can be measured by required return (rs)). This approach
explicitly considers maximization of returns (EPS). However, it is important to note that
this approach ignores risk (does not explicitly consider risk).

Major shortcoming of the EBIT-EPS approach

The fact that this approach fails to explicitly consider risk is the major shortcoming of this
method. As firm obtains more debt (its financial leverage increases), the risk also

increases and shareholders will require higher returns to compensate for the increased
financial risk. Therefore, this approach is not completely appropriate because it does not
consider one of the key variables (risk), which is necessary for maximization of
shareholders wealth.

Considering financial risk

As per above, the approach does not explicitly consider financial risk. However, when
utilizing the approach, financial risk can be considered in two ways:
1) The approach measures financial risk by the financial breakeven point. The higher the
breakeven point the greater the financial risk.
2) The approach also measures the financial risk by the slope of the capital structure line.
The steeper the capital structure line the greater the financial risk.

EBIT-EPS graph

It is a graphical approach. EPS is plotted on the vertical axis (x-axis) and EBIT on the
horizontal axis (y-axis). By connecting the coordinates for different capital structures
(different variations of equity versus debt), capital structure lines for each capital
structure are graphed.
We will need to represent EBIT-EPS coordinates (capital structure lines) for different
capital structures to ascertain at which levels of EBIT which capital structure is preferred.
This will allow us to find a capital structure with the highest EPS over the expected range
of EBIT.
For the purposes of this article it is sufficient to mention that to find EBIT-EPS coordinates
we can assume particular EBIT values (and associated earnings available for common
stockholders values) and calculate EPS in line with such values for different capital
structures.
The formula to calculate EPS is as follows:
EPS = Earnings Available for Common Stockholders/ Number of Shares of Common Stock
Outstanding Another easy way to find one of the EBIT-EPS coordinates is to use the
financial breakeven point calculation. Financial break-even point occurs at the level of
EBIT (earnings before interest and taxes) at which EPS (earnings per share) equals zero.
At this level of EBIT all fixed financial costs are covered. The formula for calculation of the
financial break-even point is as follows:
Financial break-even point = I + PSD/1-T
Where:

I interest charges
PSD preferred stock dividends
T tax rate

***
This capital structure approach does NOT allow us to determine the point where weighted
average cost of capital is at a minimum and where stock price is at a maximum (where
wealth of the owners of the firm is maximized). The approach focuses on maximizing
earnings rather than on maximizing wealth. Therefore, although it is helpful to use when
analysing alternative capital structures, the major shortcoming of this approach should
be taken into account.

Cairn India to merge into Vedanta Ltd; board approves merger

MUMBAI: Metal and mining giant Vedanta Ltd and its subsidiary oil explorer Cairn India will merge in an all share
swap deal, giving the parent access to Cairn's $2.7 billion, or about Rs 17,000 crore, cash pile that would help it
reduce debt.
Independent directors of both the companies, owned by billionaire Anil Agarwal, have approved the merger.
Minority shareholders of Cairn India will receive one equity share of Vedanta and one redeemable preference
share of Rs 10 face value with 7.5 .. annual dividend, for each share held in Cairn India.
"The merger consolidates our position as India's leading diversified natural resources champion, uniquely
positioned to support India's economic growth," said Agarwal, chairman of Vedanta Plc, which owns 50.1% stake
in Vedanta Ltd. A diversified portfolio from metal to oil exploration will help Vedanta derisk earnings volatility in an
economic slowdown, allocate capital to projects with better returns, build a stronger balance sheet AND
REDUCING OVERALL COST OF CAPITAL..

Most Important Abbreviations

===============================
* VIRUS - Vital Information Resource
UnderSeized.
* 3G -3rd Generation.
* GSM - Global System for Mobile
Communication. * CDMA - Code Divison Multiple
Access.
* UMTS - Universal MobileTelecommunication
System.
* SIM - Subscriber Identity Module .
* AVI = Audio Video Interleave
* RTS = Real Time Streaming * SIS = Symbian

OS Installer File
* AMR = Adaptive Multi-Rate Codec
* JAD = Java Application Descriptor
* JAR = Java Archive
* JAD = Java Application Descriptor
* 3GPP = 3rd Generation Partnership Project *
3GP = 3rd Generation Project
* MP3 = MPEG player lll
* MP4 = MPEG-4 video file
* AAC = Advanced Audio Coding
* GIF= Graphic Interchangeable Format
* JPEG = Joint Photographic Expert Group * BMP
= Bitmap
* SWF = Shock Wave Flash
* WMV = Windows Media Video
* WMA = Windows Media Audio
* WAV = Waveform Audio
* PNG = Portable Network Graphics * DOC =
Document (MicrosoftCorporation)
* PDF = Portable Document Format
* M3G = Mobile 3D Graphics
* M4A = MPEG-4 Audio File
* NTH = Nokia Theme (series 40)
* THM = Themes (Sony Ericsson) * MMF =
Synthetic Music Mobile Application File
* NRT = Nokia Ringtone
* XMF = Extensible Music File
* WBMP = Wireless Bitmap Image
* DVX = DivX Video
* HTML = Hyper Text Markup Language * WML =
Wireless Markup Language
* CD -Compact Disk.
* DVD - Digital Versatile Disk.
* CRT - Cathode Ray Tube.
* DAT - Digital Audio Tape.
* DOS - Disk Operating System. * GUI -Graphical
User Interface.
* HTTP - Hyper Text Transfer Protocol.
* IP - Internet Protocol.
* ISP - Internet Service Provider.

* TCP - Transmission Control Protocol.

* UPS - Uninterruptible Power Supply. * HSDPA High Speed Downlink PacketAccess.
* EDGE - Enhanced Data Rate for GSM
[GlobalSystem for Mobile Communication]
Evolution.
* VHF - Very High Frequency.
* UHF - Ultra High Frequency. * GPRS - General
PacketRadio Service.
* WAP - Wireless ApplicationProtocol.
* TCP - Transmission ControlProtocol .
* ARPANET - Advanced Research Project
Agency Network.
* IBM - International Business Machines. * HP Hewlett Packard.
* AM/FM - Amplitude/ Frequency Modulation.
* WLAN - Wireless Local Area Network

List of 31 Index PDF- Ranks of India in 2015

*********************************************
1.GLOBAL PEACE INDEX -143
2.CHOICE OF FDI-143
3.EASE OF DOING BUSSINESS -142
4.ENVIRONMENTAL PERFORMANCE INDEX -155
5.WORLD PRESS FREEDOM INDEX -136
6.ECONOMIC FREEDOM INDEX 128
7.HUMAN DEVELOPMENT INDEX -135
9.GENDER INEQUALITY INDEX 129
9.GENDER GAP INDEX -114
10.WOMENS REPRESENTATION IN PARLIAMENT -111
11.WORLD PROSPERITY INDEX 106
12.SOCIAL PROGRESSIVE INDEX -101
13.HUMAN CAPITAL INDEX 100
14.GLOBAL INFORMATION INDEX(WEF) 89
15.CORRUPTION PERCEPTION INDEX -85

NEW DELHI: Easing prices of fuel, food items and manufactured goods kept inflation in the negative zone for the
seventh consecutive month in May, although prices fell at a slower rate of (-)2.36 per cent as against the previous
month.

The Wholesale Price Index (WPI) based inflation was (-)2.65 per cent in April. It has been in the negative zone
since November 2014.
Inflation in May last year was 6.18 per cent.
The lower inflation comes amid a forecast of deficient mon ..

s
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