Bird-in-hand Theory

Definition The bird-in-hand theory of dividend policy were developed by Myron Gordon and John Lintner in response to the dividends irrelevance theory by Modigliani and Miller. The last one states that dividend policy has no… Read more

Dividend Irrelevance Theory

Definition The dividend irrelevance theory was created by Modigliani and Miller in 1961. The authors concluded that dividend policy has no effect on the market value of a company or its capital structure. The idea… Read more

Dividend Payment Procedures and Dates

Definition The cash dividend payment procedures of a company have four critical dates. Declaration date (also known as announcement date) Ex-dividend date Record date Payment date Breaking down the dividend payment procedure Declaration date The… Read more

Trade Credit

Definition Trade credit is the most common source of spontaneous short-term finance for a business. In such an agreement, the seller is the lender, allowing the buyer to pay at a later date than it… Read more

Factoring of Accounts Receivable

Definition Factoring of accounts receivables is a way of raising funds to meet emerging working capital needs. A business sells its accounts receivable to a financing company on a recourse or nonrecourse basis at some… Read more

Effective Interest Rate

Definition The concept of effective interest rate is widely used in finance to assess the interest expense of debt financing or interest income for financial assets. Moreover, IFRS (International Financial Reporting Standards) require that the… Read more

Miller-Orr Model

Definition The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. This approach allows lower and upper limits of cash balance to be set and determine the return point… Read more

Baumol-Tobin Model

Definition The Baumol-Tobin model is used in corporate finance as a cash management technique to help determine the cash balance that grants the minimum amount of transaction cost and opportunity cost (foregone interest on marketable… Read more

Cash Budget

Definition A cash budget is a financial statement with itemized projected cash inflows and cash outflows, and a projected cash balance at the end of a budget period. It is necessary to know in advance… Read more

Cash Management

Definition Cash and marketable securities management is the primary objective of the treasury and financial department. This includes financing working capital needs, managing debts, paying vendor bills, collecting accounts receivables, controlling currency positions and interest… Read more