Finance Formulas / August 5, 2018 / Luz Tyson
In contrast, implicit costs are the opportunity costs of factors of production that a producer already owns. The implicit cost is what the firm must give up in order to use its resources; in other words, an implicit cost is any cost that results from using an asset instead of renting, selling, or lending it. For example, a paper production firm may own a grove of trees. The implicit cost of that natural resource is the potential market price the firm could receive if it sold it as lumber instead of using it for paper production.
While the basic earnings-per-share formula only takes a company's outstanding common shares into account, the diluted earnings-per-share calculation takes all convertible securities into consideration. A company might have convertible preferred shares or stock options that could theoretically become common stock. If this were to happen, the result would be a reduction in earnings per share, and as such, a company's diluted earnings per share will always be lower than its basic earnings per share.
Since bonds are an essential part of the capital markets, investors and analysts seek to understand how the different features of a bond interact in order to determine its intrinsic value. Like a stock, the value of a bond determines whether it is a suitable investment for a portfolio and hence, is an integral step in bond investing.
Instead of calculating interest on a finite number of periods, such as yearly or monthly, continuous compounding calculates interest assuming constant compounding over an infinite number of periods. Even with very large investment amounts, the difference in the total interest earned through continuous compounding is not very high when compared to traditional compounding periods.
In Case You Missed It