Big data and Gearing: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Add link.)
 
imported>Doug Williamson
No edit summary
 
Line 1: Line 1:
Big data refers to the large volumes of historically unstructured information held by organisations.
1. <br />
<i>Financial gearing</i> measures the relative amount of debt in a firm's capital structure.<br />
Gearing is sometimes also known as <i>leverage</i>.<br />


Gearing and leverage ratios can be calculated in several different ways, so consistency of approach is important.


Big data technology interrogates this previously unstructured information to produce more useful summarised and selected data and analysis.
Two essential bases to define are:


For example, anti-fraud technology in banks can analyse how often bank customers log into their account, where they usually log in from, and how quickly they type in their user name and password.
i. The use of book or market values.<br />
ii. The use of Debt divided by Equity (D/E) or of Debt divided by Debt plus Equity = D / (D+E).


This process is also known as ''data mining'', or ''knowledge discovery in data''.
<b>Example</b><br />
<i>Gearing</i><br />
Assume the values of debt and equity are equal, say USD 1m each.<br />
D/E = 1/1 = 100%.<br />
This is usually known as 'gearing'.


<i>Leverage</i><br />
Using the other calculation with the same inputs (D = 1 and E = 1):<br />
D / (D+E) = 1/2 = 50%.<br />
This is usually known as 'leverage'.


<b>Adjustments to D and E figures</b><br />
With respect to the Debt figure, practice varies in including or excluding certain items such as cash, short term borrowings, leases, pensions and other provisions.<br />
Practitioners may also adjust the Equity figure, for example to exclude intangible assets.
2. <br />
<i>Operational gearing</i> relates to the operating costs of a business, and measures the relative proportions of fixed and variable operating costs.
3. <br />
'Gearing up' refers to increasing the levels of financial or operation gearing - or both - within an organisation.<br />
The intention of gearing up is to improve expected net results.  <br />
A consequence of gearing up is normally to increase risk.
Many financial disasters have been a consequence of gearing up (or leveraging) excessively in this way in earlier periods.
== See also ==
== See also ==
* [[Data]]
* [[Debt equity ratio]]
*[[Data mining]]
* [[Debt to equity ratio]]
*[[Data science]]
* [[Intangible assets]]
* [[Database]]
* [[Leverage]]
* [[Datasphere]]
* [[Leveraged]]
*[[General Data Protection Regulation]]
* [[Leveraged takeover]]
*[[Granular]]
* [[Levered]]
*[[Operational risk]]
* [[MCT]]
* [[Off-balance sheet finance]]
* [[Ungeared]]
* [[Ungeared cash flow]]
 
 
===Other links===
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]


[[Category:Compliance_and_audit]]
[[Category:Corporate_finance]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Technology]]

Revision as of 12:04, 29 May 2015

1.
Financial gearing measures the relative amount of debt in a firm's capital structure.
Gearing is sometimes also known as leverage.

Gearing and leverage ratios can be calculated in several different ways, so consistency of approach is important.

Two essential bases to define are:

i. The use of book or market values.
ii. The use of Debt divided by Equity (D/E) or of Debt divided by Debt plus Equity = D / (D+E).

Example
Gearing
Assume the values of debt and equity are equal, say USD 1m each.
D/E = 1/1 = 100%.
This is usually known as 'gearing'.

Leverage
Using the other calculation with the same inputs (D = 1 and E = 1):
D / (D+E) = 1/2 = 50%.
This is usually known as 'leverage'.

Adjustments to D and E figures
With respect to the Debt figure, practice varies in including or excluding certain items such as cash, short term borrowings, leases, pensions and other provisions.
Practitioners may also adjust the Equity figure, for example to exclude intangible assets.

2.
Operational gearing relates to the operating costs of a business, and measures the relative proportions of fixed and variable operating costs.

3.
'Gearing up' refers to increasing the levels of financial or operation gearing - or both - within an organisation.
The intention of gearing up is to improve expected net results.
A consequence of gearing up is normally to increase risk.

Many financial disasters have been a consequence of gearing up (or leveraging) excessively in this way in earlier periods.

See also


Other links

Masterclass: Measuring financial risk, The Treasurer, July 2012

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Big_data&oldid=23153’