Page 20: of Marine News Magazine (January 2015)

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COLUMN FINANCE

Interest Rate Swap: An agreement other for short term loans. It is used a percentage of shareholder’s equity between two parties to exchange a to calculate interest rates on loans reveals how much pro? t is generated stream of future interest payments for worldwide. There are thirty-? ve dif- from the money invested (net income another based on a speci? ed princi- ferent LIBOR rates each day includ- divided by shareholder’s equity equals pal. Often ? xed rate payments are ex- ing overnight, one week, 1, 2, 3, 6 and ROE); ROA: Total debt to total assets changed for a ? oating payment linked 12 months in ? ve different currencies. reveals how successfully the company to an interest rate such as the LIBOR. The one most often quoted is the 90- is using assets to generate earnings

This is done to manage ? uctuating day U.S. dollar LIBOR. (net income divided by total assets interest rates or secure a somewhat Maturity: The ? nite time period a equals ROA).

lower interest rate. ? nancial instrument will exist. In a Yield: Simply stated, the income

Leverage: A measurement of the use loan, when principal and interest are generated by an investment.

of various ? nancial instruments, debt, completely repaid to the lender, the lease commitments and other obliga- loan has reached its maturity and no There are many, many more de? ni- tions used to provide capital, ? nance longer exists. Maturity and the term tions of equal importance. Marine- acquisitions or other assets or con- of the loan are interrelated. In a 60 News readers can stay tuned to this tractual obligations to rent equipment month term loan, maturity is reached space for future advice and wisdom. over a speci? ed length of time. The at the end of month 60. In the meantime, the U.S. Govern- higher the company’s leverage, the ROI, ROE, ROA: Return on In- ment’s latest Uni? ed Agenda (pub- greater the divergence between debt vestment, Return on Equity, Return lished on November 21, 2014) now and equity. In this case, less is more. on Assets. ROI: the return on the in- indicates publication of Sub “M” is

LIBOR: The London Interbank vestments is divided by the cost of the planned for August 2015. Many in-

Offered Rate is the rate that some of investment (gain , minus cost, divided dustry stakeholders would character- the world’s leading banks charge each by cost = ROI); ROE: Net income as ize that timeline as overly optimistic, especially in light of recent comments by the Coast’s Guard’s own Chief

Executive. That said, it is never too early to prepare for that next ? nancial transaction. Before that happens, you need to speak the lexicon.

Richard J. Paine, Sr. is the National

Marine Sales Manager at Signature

Financial LLC. He can be reached at [email protected].

January 2015

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