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Why is the recovery rate of bank loans higher than that of bonds?

Lenders have a comparative advantage over bondholders in recovering their claims.  There are factors that tend to result in higher expected recoveries of loans over bonds, includin...


When is a distressed firm restructured?

A restructuring operates primarily on the liabilities side of the debtor’s balance sheet by postponing liabilities and using the time gained to readjust the claims against the firm...


What is US GAAP?

US Generally Accepted Accounting Principles (US GAAP) are the overall conventions, rules and procedures that define accepted accounting and financial reporting practice to be follo...


What is the US GAAP CECL Model?

In June 2016, the FASB introduced the expected credit loss model (CECL model) to become effective on 1 January 2020 for public business entities that are Securities and Exchange Co...


What is the statement of changes in equity?

The statement of changes in equity is a financial statement that reports all changes to a company’s owners’ equity over an accounting period, including total comprehensive income,...


What is the statement of cash flows?

The statement of cash flows is a financial statement that reports the flow of cash into and out of a company in a given year resulting from the entity’s operating, financing and in...


What is the income statement?

The income statement is a financial statement that reports the results of an entity’s business activities for an accounting period by showing its revenues, expenses, gains and loss...


What is the IFRS expected credit loss (ECL) model?

Under IFRS 9, debt instruments, excluding purchased or originated credit impaired financial instruments, move through three stages as credit quality changes after initial recogniti...


What is the cash conversion cycle?

The cash conversion cycle (CCC) is the cycle from the conversion of cash into inventory, from inventory into accounts receivable, and then back into cash: Days Inventory Outstandin...


What is the allowance for loan and lease losses (ALLL)?

That portion of outstanding loans and leases that is deemed to be uncollectible is charged off and reported as an allowance for loan and lease losses at the end of the accounting p...


What is shareholders’ equity?

An equity instrument is any financial instrument that evidences the legal right of ownership in a company and where all the payments on the instrument are at the discretion of the...


What is secured debt?

One component of the senior debt of a company is typically a revolving line of credit.  Accounts receivable financing and inventory financing are the two most common types of senio...


What is revenue recognition?

The revenue recognition principle calls for the recognition of revenue in the period when a sale takes place or a service is performed (i.e., when it is earned), regardless of when...


What is property, plant and equipment (PP&E)?

Property, plant and equipment (PP&E) comprises such noncurrent assets as land, buildings, machinery and equipment, furniture and fixtures, and leasehold improvements that are a...


What is paid-in capital?

The principal component of the shareholders’ equity section is the paid-in capital accounts.  Paid-in capital reports the total amount of equity capital invested in the company by...


What is operating profit?

Operating expenses comprise all expenses that are incurred in carrying out a firm’s ordinary activities, including advertising, salaries, rent, research and development, office sup...


What is operating cash flow?

Operating activities are the main revenue producing activities of a firm.  Operating cash flow (OCF) is the cash flow arising from day-to-day revenue and expense transactions due t...


What is one-line consolidation?

For tax purposes, dividends are the only revenue realized from the investee.  Consequently, the investor must recognize deferred income tax expense on the investee’s undistributed...


What is net income?

The difference between earnings before interest and taxes (EBIT) and earnings before taxes (EBT) is an entity’s financial results.  Financial results is determined by the earning o...


What is long-term debt?

Long-term debt is the total principal amount of a company’s financial obligations that is to be retired after the following accounting period, including term loans, bond and notes,...


What is liquidity and solvency analysis?

Balance sheet analysis is commonly conducted quarterly and annually to help lenders and other creditors, investors and financial intermediaries determine the company’s creditworthi...


What is investing cash flow?

Investing activities involve the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents.  Investing cash flow (ICF) is ca...


What is inventories?

The inventories account on the balance sheet reports merchandise held for sale, or supplies used in the manufacture of products to be sold in the normal course of business.  Invent...


What is insolvency?

A state of insolvency exists when either an entity is unable to pay its debts as they mature and come due for payment, which can be seen through the analysis of the company’s cash...


What is income?

Income reflects economic benefits in the form of increases in assets or decreases in liabilities during an accounting period that result in increases in equity, excluding economic...


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