What Is Asset Allocation? Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance, and investment horizon. The three main asset classes—equities, fixed-income, and cash and equivalents—have different levels of risk and return, so each will behave differently over time.
What Is an Asset Base? An asset base refers to the underlying assets that give value to a company, investment, or loan. The asset base is not fixed; it will appreciate or depreciate according to market forces, or increase and decrease as a company sells or acquires new assets. Although it is completely normal for
What Is an Asset-Based Approach? An asset-based approach is a type of business valuation that focuses on a company’s net asset value. The net asset value is identified by subtracting total liabilities from total assets. There is some room for interpretation in terms of deciding which of the company’s assets and liabilities to include in the
What Is Asset-Based Finance? Asset-based finance is a specialized method of providing companies with working capital and term loans that use accounts receivable, inventory, machinery, equipment, or real estate as collateral. It is essentially any loan to a company that is secured by one of the company’s assets. Asset-based funding is often used to pay
What Is Asset-Based Lending? Asset-based lending is the business of loaning money in an agreement that is secured by collateral. An asset-based loan or line of credit may be secured by inventory, accounts receivable, equipment, or other property owned by the borrower. The asset-based lending industry serves business, not consumers. It is also known as asset-based
What Is an Asset Condition Assessment? An asset condition assessment is a report outlining how an organization can manage capital assets to improve its asset management operations. An asset condition assessment (ACA) is most commonly associated with organizations that manage physical assets, such as bridges, roads, and equipment, and is used to decide upon preventative
What Is the Asset Coverage Ratio? The asset coverage ratio is a financial metric that measures how well a company can repay its debts by selling or liquidating its assets. The asset coverage ratio is important because it helps lenders, investors, and analysts measure the financial solvency of a company. Banks and creditors often look
What Is Asset Deficiency? Asset deficiency is a situation where a company’s liabilities exceed its assets. Asset deficiency is a sign of financial distress and indicates that a company may default on its obligations to creditors and may be headed for bankruptcy. Asset deficiency can also cause a publicly traded company to be delisted from a
DEFINITION of Asset Earning Power (AEP) Asset earning power (AEP), which measures the earnings power of a business relative to its asset base, is a profitability ratio. Asset earning power is calculated as: Asset Earning Power = Earnings Before Taxes/Total Assets Understanding Asset Earning Power (AEP) Asset earning power (AEP) is a measure of how
What is Arrow’s Impossibility Theorem? Arrow’s impossibility theorem is a social-choice paradox illustrating the flaws of ranked voting systems. It states that a clear order of preferences cannot be determined while adhering to mandatory principles of fair voting procedures. Arrow’s impossibility theorem, named after economist Kenneth J. Arrow, is also known as the general impossibility theorem.
