Archive for category finances
Measure for mortgage profitability
Posted by admin in Financial Advice, Global Markets, bonds, budget, business, expenditures, finances, fixed costs, incentive on October 26th, 2009
A common measure for profitability is the ratio of retained earnings to total assets. We defined retained earnings as undistributed profits, that is, after-tax profits minus dividend payments. Like the working capital ratio, the profitability measure is on a downtrend in the longer term. During recessions the profitability of the companies usually declines. It is worth noting that the latest recession in 2001 marks an exception with respect to the ratio of internal funds to total assets. Whereas the profitability declined like in any other recession before, the cash flows of the companies on average improved in this period due to rigorous cost cutting in the corporate sector.
The correlation between credit spreads and the business cycle
Posted by admin in bonds, business, credit, credit cards, economy, finances, payday loans on October 21st, 2009
Fama and Chen examine the correlation between credit spreads and the business cycle. They find empirical evidence that corporate bond spreads are good predictors of future economic growth. Based on empirical data from 1933 to 1997, a recent study by Koopman and Lucas (2003) reveals two different types of cycles. On the one hand, there is a cycle with a frequency of about 6 years, where a positive correlation between credit spreads and default rates, and a negative correlation between spreads and economic growth can be observed. On the other hand, a second cycle with a duration of about 11 years shows a positive link between spreads and business failures, and a negative correlation between GDP growth and both spreads and default rates. However, constraining the analysis on the post Second World War era no significant correlations between credit spreads, default rates and the business cycle could be found.