What Is a Coverage Ratio? A coverage ratio, broadly, is a metric intended to measure a company’s ability to service its debt and meet its financial obligations, such as interest payments or dividends. The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends. The trend
What is a Coverage Trigger? A coverage trigger is an event that must occur in order for a liability policy to apply to a loss. Coverage triggers are outlined in the policy language, and courts will use different legal theories pertaining to triggers to determine whether policy coverage applies. Key Takeaways A coverage trigger is outlined
What Is a Coverdell Education Savings Account (ESA)? A Coverdell Education Savings Account is a tax-deferred trust account created by the U.S. government to assist families in funding educational expenses for beneficiaries who must be under the age of 18 when the account is established. The age restriction may be waived for special needs beneficiaries.
What Is the Cost Approach? The cost approach is a real estate valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building. In the cost approach, the property’s value is equal to the cost of land, plus total costs of construction
What Is a Cost-Benefit Analysis? A cost-benefit analysis is a systematic process that businesses use to analyze which decisions to make and which to forgo. The cost-benefit analyst sums the potential rewards expected from a situation or action and then subtracts the total costs associated with taking that action. Some consultants or analysts also build models to
What Is a Cost Center? A cost center is a department or function within an organization that does not directly add to profit but still costs the organization money to operate. Cost centers only contribute to a company’s profitability indirectly, unlike a profit center, which contributes to profitability directly through its actions. Managers of cost
What Is Cost Control? Cost control is the practice of identifying and reducing business expenses to increase profits, and it starts with the budgeting process. A business owner compares the company’s actual financial results with the budgeted expectations, and if actual costs are higher than planned, management has the information it needs to take action.
What Is Cost Cutting? Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. Cost cutting measures are typically implemented during times of financial distress for a company or during economic downturns. They can also be enacted if a company’s management expects profitability issues in the future, where cost
What Is Cost Depletion? Cost depletion is one of two accounting methods used to allocate the costs of extracting natural resources, such as timber, minerals, and oil, and to record those costs as operating expenses to reduce pretax income. It’s a method for allocating extraction costs, charged as an expense. The yearly depletion cost is
What Is the Cost of Acquisition? The cost of acquisition is the total expense incurred by a business in acquiring a new client or purchasing an asset. An accountant will list a company’s cost of acquisition as the total after any discounts are added and any closing or transaction costs are deducted. Cost of acquisition
