Archive for category short-term income
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.
Understanding Debits and Credits – part 2
Posted by admin in Investment Opportunities, market demand, ownership, paperwork, profit margin, short-term income on August 3rd, 2009
Company financial operations also generate two other accounting statements:
Income statement—a summary of business revenue and expenses for a specific period of time.
Statement of owners’ equity—a record of the value or percentage of ownership held by individuals or firms with a stake in the business.
The primary purpose of all such statements is to help keep the company finances in balance. To that end, all debits must equal credits and all credits must equal debits when reflected on the balance sheet and income statement. If they don’t, the balance sheet won’t balance.
Your accountants may also generate another statement, for cash flow. We’ll discuss cash flow later; for now, all you need to know is that while the income statement and the statement of owners’ equity show the state of finances, the cash flow statement tells how the company reached that state. In essence, it accounts for how cash came in and how it went out.
Drafting a Budget
Posted by admin in Real estate, production cycles, profit margin, profit projections, short-term income on August 2nd, 2009
So what does a budget look like? There are numerous variations, but the goal of any budget is to clearly communicate revenue and cost centers so that profit statements can be drafted and management of resources, including income, can be better accomplished. To that degree, all budgets tend to look the same.
For the sake of this lesson, let’s assume our unit maker described earlier has been in business several years and is charged with budgeting for next year. That means he will have budgets from previous years from which to draft future business plans. The operational budget, then, likely will break revenue and expense components down to three columns:
1. The current year’s budget, or what he originally projected his income and expenses to be.
2. The current year’s projected year-end actual expenses and revenues. Even if it’s a guess, which it tends to be, it must be as accurate a guess as possible.
3. The next year’s budget, which tends to be a hybrid between the actual budget, the year-end projected actuals, and a best guess for what the new year will bring.
Word About Costs When Creating a Budget Plan – part 2
Posted by admin in consulting, effective budgeting, production cycles, short-term income, variable costs on August 1st, 2009
Variable costs are a little different and allow you some budgeting flexibility. These are costs that fluctuate directly with the amount of business you support. Variable costs—costs that are business-dependent—include supply of goods and materials and, to some degree, part-time labor necessary to keep the business operating apace with demand.
Semi-variable costs are expenses with components that are fixed and components that are variable. For example, telephone expenses are semi-variable costs in that the monthly service charge is fixed and the charges for long-distance calls and the 800 number are variable.
Word About Costs When Creating a Budget Plan – part 1
Posted by admin in Companies, effective budgeting, fixed costs, management skills, market forecasts, short-term income on August 1st, 2009
When budgeting for labor costs, the distinction to keep in mind is between direct and indirect. Direct labor costs are those incurred in any work on products or services that can be tracked readily, such as wages for assembly line workers. Indirect labor costs are for activities related to products or services that are not readily tracked, such as salaries for supervisors and support personnel. Both direct and indirect labor costs can be either fixed or variable.
Let’s look at the three types of costs that make up the expenses part of a budget.
Fixed costs are perhaps the most important costs to manage. They are the costs that remain constant throughout and are impervious to the cycle of business. The rent you pay from month to month is a fixed cost because it doesn’t vary no matter what your sales pattern might be. To a large degree, salaries also are fixed costs, although they may have variable components in terms of performance bonuses. Utility costs are the same way. Any expense that remains constant no matter what the cycle of business is a fixed cost.
Budget Components – part 3
Posted by admin in budget, effective budgeting, equity, manufacturing, short-term income on July 31st, 2009
A capital budget sets aside funds for capital expenditures. These are primarily new pieces of equipment or facilities, to be used over a period of years. Strategic in nature, a capital budget involves looking at the long-term profit that’s likely to come from investing in that equipment or building.
Many companies allow for flexible budgeting, a process by which budgets are adjusted to match output and/or marketplace factors that influence the company’s revenues and expenses. Companies with a sudden short-term, unbudgeted income opportunity may create a flexible budget that adds to the expense side of the equation, but also adds corresponding revenues from product sales.