What is price variance in cost accounting?

Price variance is the difference between the actual price paid by a company to purchase an item and its standard price, multiplied by the number of units purchased. The formula for price variance is: Price variance = (actual price – standard price) x actual quantity Based on the equation above, a positive price variance means the actual costs have increased over the […]

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What kinds of restrictions does the SEC put on short selling?

Since the stock market crash in 1929 and the ensuing Great Depression, short selling has been the scapegoat in many market downturns. In a short sale, an investor sells shares in the market, which are borrowed and delivered at settlement. The intent is to make profit by buying shares to repay the loaned ones at a lower price. After the Great […]

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Why is Short Selling Legal? A Brief History

Short selling was one of the central issues studied by Congress before enacting the Securities and Exchange Act in 1934, but Congress made no judgments about its permissibility. Instead, Congress gave the Securities and Exchange Commission (SEC) broad authority to regulate short sales in order to prevent abusive practices. (For more, see The SEC: A Brief History of Regulation.) Short Selling Becomes Legitimate […]

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How does the law of supply and demand affect the oil industry?

The law of supply and demand primarily affects the oil industry by determining the price of the “black gold.” The costs, and expectations about the costs, of oil are the major determining factors in how companies in the industry allocate their resources. Prices create certain incentives that influence behavior; this behavior eventually feeds back into supply and demand to determine […]

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What is the average price-to-earnings ratio in the banking sector?

The average price to earnings ratio (P/E) for banking firms, as of January 2018, is approximately 25.16. This compares with an overall market average P/E ratio of 71.28 – but this is a simple arithmetic average, skewed by the figures for a very small number of firms with P/E ratios over 100 or 200. A mean or median average would […]

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What is the difference between yield to maturity and the spot rate?

Bonds are marketable and relatively liquid securities, and there are several different accounting methods for discounting their values to give investors a sense of their present worth. The most common of these is called yield to maturity, or YTM, which represents the expected rate of return on a bond if held until it matures. Spot rates are not specific to […]

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How Does Arbitrage and Hedging Differ?

Hedging and arbitrage both play important roles in finance, economics and investments. Basically, hedging involves the use of more than one concurrent bet in opposite directions in an attempt to limit the risk of serious investment loss. Meanwhile, arbitrage is the practice of trading a price difference between more than one market for the same good in an attempt to profit from the […]

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Why It Is Important to Follow Crude Oil Inventories

Oil inventories provide insight into the balance of supply and demand in the oil market, and the balance of supply and demand influences oil prices. The relationship between supply and demand is one of the fundamental concepts of economics. Supply and Demand Fundamentals Supply refers to how much of a good the market is willing to offer, and demand refers […]

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How Is Marginal Propensity to Save Calculated?

Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and changes in savings. It refers to the proportion of a raise in pay that a consumer saves rather than uses for consuming goods and services. How Marginal Propensity to Save Is Calculated The marginal propensity to save is calculated by dividing the change in savings by […]

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What are typical examples of capitalized costs within a company?

In accounting, the cost of an item is capitalized on a company’s balance sheet if the company expects to consume the item over a long period of time. Rather than being expensed, the cost of the item or fixed asset is capitalized and amortized or depreciated over its useful life. Typical examples of corporate capitalized costs are expenses associated with […]

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