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Finance GlossaryCompany Debentures
Company Debentures
Definition of Company Debentures
A debenture is a debt instrument that a company uses to take out a loan in exchange for a fixed interest rate. Debentures can either be used to refer to bonds or documents created in exchange for a medium to long-term loan.
Related Terms
Volume Weighted Average Price (VWAP)
VWAP is a trading benchmark that calculates the average price of a security weighted by trading volume throughout the day. Institutional traders often compare execution prices to VWAP; buying below VWAP suggests efficient trade execution, while prices above it may indicate higher-than-average transaction costs.
Bonds
Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period.
A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.
The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:
The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:
- SOV: Only for government bonds
- AAA: Highest
- AA+: High-medium
- A+: Upper-medium
- BBB+: Lower-medium
- BB+: Speculative
- B+: Highlight speculative
- CCC+: Risky
- CC: Extremely risky
Price Band
A price band is a regulatory mechanism or a voluntary limit set by an exchange or company that restricts the maximum and minimum price at which a security is allowed to trade for a given day. These bands, which are often expressed as a percentage above and below the previous day's closing price, are mainly implemented to prevent excessive volatility and market manipulation. Trading in the security is stopped or suspended if the price moves outside the set price band.
Negative Working Capital
Negative Working Capital refers to a situation where a company’s short-term assets are lower than its short-term liabilities. This implies the business is using supplier credit or advance payments to run its operations. Although it may suggest cash pressure, in certain business models, it can reflect operational efficiency.
Strike Price
The strike price refers to the fixed price at which a trader can buy (call) or sell (put) the underlying asset. The strike price is a key component in options trading. It helps traders determine whether or not the option would be profitable when it expires. The intrinsic value of an option is influenced by the difference between the market price and strike price.
Price-to-Sales (P/S) Ratio
The Price-to-Sales (P/S) Ratio is a valuation metric that divides a company's current market capitalisation by its total sales or revenue of the last twelve months. It is used to gauge the amount investors are willing to pay for every rupee of a company's revenue. This ratio is useful when looking at companies that are not yet profitable or have volatile earnings, because revenue is often less volatile and less susceptible to accounting manipulations than earnings are. A lower P/S ratio is often thought to be more favorable.
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