Operating profit and PIK notes: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Add link to Operating profit margin page.)
 
imported>Doug Williamson
(Link with Unsecured debt.)
 
Line 1: Line 1:
(Op P).
Debt instruments based on non-cash payment of interest coupons.


Operating profit is the amount of revenue after deducting the operating costs. <br />
Interest is usually recognised by an increase in the amount of principal owed by the borrower.




In a simple business, the operating profit will be the same as the profit before interest and tax.
PIKs are generally either unsecured loans or deeply subordinated securities ranking just before equity in the capital structure.  


For this reason, operating profit is sometimes treated in simple terms as being the same thing as the profit before interest and tax.  
This means that, in the event of a bankruptcy, PIKs are the last debts to be repaid, making them a high risk instrument for lenders and investors.  


In order to compensate lenders for the risk, PIKs have to offer significantly enhanced rates of return to investors.


In a more complex business, there may be other items of income or expenditure, or both, in between operating profit and profit before interest and tax.


 
== See also ==
==See also==
* [[Coupon]]
* [[Operating profit margin]]
* [[Equity]]
* [[Profit before interest and tax]]
* [[Interest]]
* [[RCOP]]
* [[Notes]]
 
* [[Payment in kind]]
[[Category:Accounting,_tax_and_regulation]]
* [[Principal]]
* [[Secured debt]]
* [[Subordinated debt]]
* [[Unsecured debt]]

Revision as of 14:21, 22 August 2017

Debt instruments based on non-cash payment of interest coupons.

Interest is usually recognised by an increase in the amount of principal owed by the borrower.


PIKs are generally either unsecured loans or deeply subordinated securities ranking just before equity in the capital structure.

This means that, in the event of a bankruptcy, PIKs are the last debts to be repaid, making them a high risk instrument for lenders and investors.

In order to compensate lenders for the risk, PIKs have to offer significantly enhanced rates of return to investors.


See also