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Business Concepts

Year-Over-Year [ Definition, Example, Pros & Cons ]

Let's suppose that Company A reported revenue of $50000 in 2020 and $25000 in 2019.  To calculate year-on-year growth, one would have to use the following formula: In the case of 'Company A' example, we would substitute the following values in the formula: As per the calculation, Company A had a year-on-year growth of 100%. As you must have figured out by now, year-over-year analysis entails comparing the performance of one period with the same period. The period comparison made during the Year-over-Year analysis could be annual, quarterly, or monthly. In most cases, year-on-year analysis is used to assess the financial performance of...

Interest Coverage Ratio

The interest coverage ratio is a quantity that is used to evaluate the financial health of a company. It is calculated by dividing the earnings of a company (before interest and taxes) by the amount of interest the company is required to pay over a fixed time period. It can be calculated using the formula, text{Interest Coverage Ratio}= frac{text{Earnings before interest and taxes(EBIT)}}{text{Amount of interest to be paid by the company}} We can calculate the EBIT of a company by subtracting the expenditure of the company from the total revenue. The interest coverage ratio is also known as the Times Interest Earned ratio...

What are Barriers to Exit & Types of Barriers to Exit

Let's suppose that an airline has been incurring recurring losses and wants to shut shop to avoid further losses. However, the airline owes a considerable amount of debt to its investors, using whose money the airline purchased airplanes in the first place.  Scraping the airplanes would not give enough return on their original value. Another airline looking to amp up its fleet numbers would be ideal to buy the planes. But finding such a buyer when the struggling airline is looking to exit the business would be an uphill task. If the airline doesn't find a buyer, it would have...

What are Barriers to Entry & Types of Barriers to Entry

Let's suppose someone wants to start a lemonade stand. Getting one up and running would be relatively easy and within the financial reach of the majority of the population. In this case, one could say that the barriers to entry to starting a lemonade stand business are low. On the other hand, if you wanted to start a new airline, getting one up and running would be relatively more difficult than starting a lemonade stand and outside the financial reach of the majority of the population. And say even if you had the financial resources needed to create an airline,...