An arm’s length transaction is a deal wherein both buyer and seller are independent, unrelated, well-informed, have equal bargaining power, and are acting purely in their own self-interest to get the best price out of the deal. And because they are both on equal footing, an arm’s length transaction is one that meets fair market…
All What is Articles - Page 37
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Debt to Income Ratio: How to Calculate & DTI Formula
The debt to income (DTI) ratio measures the percentage of your monthly debt payments to your monthly gross income. For example, if your monthly debt payments are $3,000 and your monthly gross income is $10,000, your DTI ratio is 30%. Lenders check this during the application process and typically require a DTI of 43-50% or…
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Website Basics: What It Is & How to Create One
A website is a collection of multimedia files that can be accessed via the internet. The web site may be owned by an individual, a business, or another entity, such as a government agency. The collection of files is listed under a domain name belonging to the site owner, and it’s hosted by one or…
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Collateral Coverage Ratio: What it is, Formula, & How to Calculate
The collateral coverage ratio represents the percentage of a loan secured by a discounted asset and is used by lenders to set maximum loan limits. For example, mortgage lenders typically value property at a discounted rate of 80% of fair market value (FMV) and offer loans with a minimum collateral coverage ratio of one, or…
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Zoning Laws for Small Business: What You Need to Know
Zoning laws, also known as zoning ordinances, define 1) what types of land use is allowed for a given area and 2) building regulations such as maximum building size or the need for fire escapes. If you’re starting a business, you need to be familiar with the zoning laws that cover your building and area….
Cross Collateralization: What it is & Why it’s Important
Cross Collateralization typically occurs when one asset is used as collateral for two or more loans. It also occurs when a borrower uses a group of assets to secure a group of seemingly unrelated loans. This commonly happens when someone has multiple loans at a single bank that uses the combined assets as collateral for…
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At Will Employment Doctrine: How It Works & 4 Big Exceptions
At will employment means that an employee can leave a job whenever they want for any reason, and employers can terminate an employee for any reason without notice or cause. The intent of the at will employment doctrine is to prevent wrongful termination and employment lawsuits between employees and employers. Please note that this article…
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What Are Current Assets: Formula & How to Calculate
Current assets are balance sheet assets that can be converted to cash within one year or less. Accounts that are considered current assets include cash and cash equivalents, marketable securities, accounts receivable, inventory, prepaid expenses, and other liquid assets. These short-term assets are a key component of a company’s net working capital and short-term liquidity….
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What Is Fixed Charge Coverage Ratio: How to Calculate & FCCR Formula
The Fixed Charge Coverage Ratio (FCCR) indicates a firm’s ability to pay its fixed charge obligations (expenses) from its income before interest and taxes. It determines the extent to which recurring charges consume the company’s cash flow. The ratio derived from the computation is the number of times a firm can cover its fixed expenses…
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What is Asset Turnover Ratio: How to Calculate & Formula
The asset turnover ratio is the percentage of a company’s revenue to the value of its average total short- and long-term assets. It measures how efficient a company is at using its assets to generate revenue. For example, if your net sales are $20,000 and average total assets are $12,000, then your asset turnover ratio…
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What Is Net Working Capital: How to Calculator & NWC Formula
Net working capital (NWC) is the difference between a company’s current assets and current liabilities. A positive net working capital indicates a company has sufficient funds to meet its current financial obligations and invest in other activities. For example, if current assets are $85,000 and current liabilities are $40,000, the NWC is $45,000. Net Working…
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The Pareto Principle: Leveraging The 80/20 Rule To Get More Referrals
As a young real estate agent, I would work with anyone who could fog a mirror and showed an interest in buying or selling a home. I quickly discovered the Pareto Principle, named after the Italian economist Vilfredo Pareto who observed that 20 percent of the people in Italy owned 80 percent of the country’s…
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