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Finance GlossaryForeign Direct Investment
Foreign Direct Investment
Definition of Foreign Direct Investment
Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
Related Terms
Out of the Money (OTM)
An option contract is said to be out of the money (OTM) if it would not be profitable to exercise the contract immediately. Options with no intrinsic value; call options with a strike price higher than the current market price, or put options with a strike price lower than the market price. OTM options are less expensive than ITM options. Indian F&O traders often purchase OTM options for leveraged bets, though they expire worthless if the market doesn't move favourably.
Positional Trading
Positional Trading is a trading strategy where a trader keeps their position (long or short) for weeks to months. Unlike intraday trading or swing trading, positional traders do not pay attention to minor price fluctuations and focus on fundamental analysis, economic trends, and long-term technical patterns to predict the overall direction of a security. This strategy is less time-intensive and is often preferred by traders who are looking to capture major moves in the market with lower transaction costs.
Time Value of Money (TVM)
Time Value of Money (TVM) is the concept that money available today is worth more than the same amount in the future due to its earning potential. It forms the foundation of financial decision-making and valuation. TVM is applied in investments, loans, discounting cash flows, and retirement planning.
Equity Options
An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
EBITDA MARGIN
EBITDA margin is the ratio of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by revenue, represented as a percentage. It is used to understand whether a company is profitable and as a valuation technique.
The formula to calculate EBITDA margin is: EBITDA Margin = (EBITDA/Revenue)*100
Just like EBITDA, the EBITDA margin also excludes non-cash expenses. That’s why a positive EBITDA margin doesn’t necessarily mean that a company is profitable.
The formula to calculate EBITDA margin is: EBITDA Margin = (EBITDA/Revenue)*100
Just like EBITDA, the EBITDA margin also excludes non-cash expenses. That’s why a positive EBITDA margin doesn’t necessarily mean that a company is profitable.
Deferred Tax
The term deferred tax in a financial statement is used to refer to future tax payments in the case of temporary differences, a situation where an asset or liability on the balance sheet is realised but is taxable in the future.
Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.
Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.
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