Archive for category revenue
Credit and equity prices and volatility
Posted by admin in Real estate, Save Money, Taxes, revenue, short-term income, understanding finances, variable costs on October 30th, 2009
Generally, equity-based models for credits have to be analyzed in the context of the leverage cycle. When the level of debt remains constant, equity as well as credit investors both benefit from rising equity prices, driven, for example, by increasing earnings estimates. When leverage is rising like, for instance, between 1997 and 2000, equities tend to perform well while credit spreads widen at the same time. Conversely, deleveraging through rights issues or asset disposals, cost cutting and dividend cuts provide a favorable environment for credit, but not for equities. As Figure 3.24 shows, there is undoubtedly a relationship between equity prices and credit spreads. Yet, this relationship varies over time, depending on the current and the expected fundamental environment in the future.
Models that only relate credit spreads to equity prices therefore need to be interpreted cautiously. Assume, for example that the management of a company signals its willingness to concentrate on the creation of shareholder value. Then the probability of leveraging increases substantially. If there has been no decoupling, credit investors should take that as a sign to be rather bearish.
The fundamentals of credit valuation
Posted by admin in Save Money, performance objectives, profit margin, profit projections, revenue, understanding finances, variable costs on October 24th, 2009
Besides market fundamentals valuation is the major driver of market performance for the longer term. The other two drivers that are commonly mentioned in investment literature, technicals and market sentiment, are more likely to explain short- to medium-term fluctuations of credit spreads.
The subject of valuation arises on every level of the investment process. Generally, it is a question of relative attractiveness of one investment vis-avis another one. In this chapter, we will outline four approaches that may support asset allocation decisions in fixed income portfolios with an aggregate benchmark as well as help to determine the beta of a pure credit portfolio.
Managers’ Great Expectations and Accounting
Posted by admin in Companies, consulting, financial information, revenue, variable costs on August 3rd, 2009
The essence of managerial expectations is found in what’s called basic accounting ARTS—meaning that in reporting financial data, the accounting function should be Accurate, Relevant, Timely, and Simple.
Given the important role of accounting, it only stands to reason that managers have certain expectations of the accounting function, including the following basic principles:
The accounting system must accurately reflect the company’s current financial condition. And it must do so in a timely fashion.
The system must be clear, logical, and easy to use. Information should be understandable to all company officers and executive staff without the need for complex interpretation by the accountant.
The system must provide useful information that officers and staff can use in making decisions and achieving the company’s goals.
But even if the company’s accountants are the best in the world, it won’t matter much if the nonfinancial managers around them basically take the information in their reports and file it away—either horizontally or vertically—because they don’t have much idea how the numbers were generated or what they mean.
Budget Components – part 1
Posted by admin in consulting, management skills, manufacturing, market forecasts, revenue on July 31st, 2009
Each budget will have two main sections, and a good manager will come to know each of these sections as intimately as his or her own family.
The first section measures company revenues, or income from sales, investments, and any other sources. You need to match up your expected revenues with your expected expenses, the other main part of the budget.
Say you work for a luxury boat manufacturer. Your company itemizes revenue from the sales of a certain type of speedboat. On the expense side, it then has to make sure the costs involved in building this boat will be less than the revenues it will generate. You don’t want to build speedboats that cost more than people pay for them.
Other roles of the budget
Posted by admin in effective budgeting, financial growth, market forecasts, revenue on July 31st, 2009
A budget has many uses beyond charting the company’s financial goals.
It can assist in measuring the feasibility of technology development— both its likelihood and its application—and can help provide marketplace forecasts. It also may help measure the impact of new legislation affecting the market and may reflect new regulations—both internal and external—that touch the company. It’s all there if you know where to look.
If your company makes ball bearings, the tactics for creating better bearings may be to define consistent settings on the milling equipment and monitor those settings as a way to reduce inconsistencies, thus reduce costs due to production problems. The procedure for doing so might involve a worker performing an inspection every half hour, noting the settings in a log, and reporting to the supervisor any variations beyond allowable limits. Or if your concern is with sales, the tactics may be to identify territory penetration for a sales force right down to the number of new contacts made per week with revenue computed on the number of sales per call made each week. The procedure would likely involve logging all new contacts and tracking the results. These are budget concerns and can be measured by the financial impact on your company of both revenues and costs generated.
Stepping into the Budgeting Process
Posted by admin in consulting, effective budgeting, performance objectives, production cycles, revenue on July 31st, 2009
Define the tactics that will help a department or company achieve its objectives. Goals and objectives can be achieved only if the company sets out a tactical game plan. There are different ways to get from Point A to Point B and a company’s success will depend on choosing effective tactics to reach those goals. The cost of pursuing those tactics also will be part of the overall budget, reflected as part of the cost of doing business.
The best tactics usually yield the highest reward, whether that’s in terms of annual earnings, market share gain, or growth potential. But tactics vary with each situation, each company, and each strategy. The important thing is that those tactics are reflected in the budget in terms of their effect on both the revenue and expense side.
Identify procedures to help achieve that goal. Procedures are to tactics what objectives are to goals. They are more specific, more operationally oriented—almost mechanical.