Archive for category Taxes
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 ratio of sales to loans and assets
Posted by admin in Business plans, Companies, Money Tips, Taxes, communication, market demand, market forecasts, profit margin, understanding finances on October 28th, 2009
The ratio of sales to assets is an asset turnover ratio that measures the sales-generating capacity of a given asset base. Taking the nominal GDP of the nonfinancial corporate sector as a measure for sales. The ratio has started to turn up at the beginning of 2001. This pattern is normally consistent with periods of recovery. However, it should be noted that this ratio is near its historical low. The z-score for the nonfinancial corporate sector has collapsed dramatically since 2000, resting well below the critical level of 1.8 since the second quarter of 2002. For an individual firm this signals that the company is likely to fail within 2 years. On the macro level it indicates a high probability of rising default rates and widening credit spreads. Three points stand out:
- based on macroeconomic data the z-score has never been in the safe zone;
- the average score since 1952 is about 2;
- in the 1970s and 1980s, the z-score was permanently in the distress zone implying that corporate America should have gone bankrupt, but clearly it survived.
This leads to the conclusion that the weighting scheme is no longer appropriate to capture the vulnerability of the corporate sector. The relative importance of the individual factors changes over time. Therefore, it is necessary to adjust the weighting scheme on a regular basis, for example by using a regression methodology.
Stepping into the Budgeting Process – part 1
Posted by admin in Taxes, consulting, effective budgeting, expenditures, management skills, production cycles on July 30th, 2009
Like any plan, a budget requires more than sitting down, crunching out some numbers that add up to a positive bottom line, and handing it over to the accounting department to plug in. Effective budgeting requires thought, careful planning, and a look at issues beyond the numbers. Consider the following components when you budget:
Be careful how the budget is created. Department managers who are strictly concerned with the bottom line may, just to look good, cut out expenses that are vital for the department to operate effectively. That’s not an effective way to do a budget.
Defining Budget Type – part 3
Posted by admin in Taxes, consulting, expenditures, financial growth, management skills on July 30th, 2009
One of the major facets of budgeting is cost control, and that’s also one of the major responsibilities of company managers. Budgets are the key to cost control, but only when managers have had a hand in developing those budgets. If management doesn’t understand and use the budget, it will do a company no good. Involve all pertinent staff in the budgeting process. That allows them greater ownership of the process and enables them to better stay with the budget they’ve helped develop.
Strategic budgets help a company decide whether to invest in a business venture that may take several years to become profitable. A management consulting firm, for example, might be considering whether to develop a software division. A strategic budget would help it figure out (1) whether over the long haul this made good sense, and (2) how long it will take before the venture pays off.
Cross-fertilization of ideas in investing abroad
Posted by admin in Money Tips, Real estate, Save Money, Taxes on June 12th, 2009
By investing abroad, not only can you get the benefit of a cross-fertilization of ideas, but you can also benefit from a cross-fertilization of projects. In New Zealand I am involved with a boutique hotel and a small vineyard. To many people, this may just be of passing interest, but my colleague and friend Rich Lamphere recognized a tremendous opportunity to link the New Zealand operation to his extensive project in northern California that also includes a vineyard and boutique hotel.
Rich is a true visionary with a big heart, and is living proof of Zig Ziglar’s maxim that “You can get whatever you want, so long as you help enough other people get what they want.” By offering guests in either country wines from both projects, reciprocal hotel perks, combined frequent-user benefits, and an excuse and incentives to use the other country’s facilities, both projects benefit.
As for the claim that real estate is so complex, and the laws so involved, that it is difficult to keep up with the regulations in your own turf, let alone a foreign country, these critics need to get a passport (I would put money on it that they do not have one), jump on a plane, and go somewhere where they have never been before. Of course real estate is complex, even at home. In fact, it is so complex that even at home you should barely do any of it yourself.
Investing Abroad
Posted by admin in Financial Advice, Global Markets, Save Money, Taxes on May 23rd, 2009
A few years back I was shown a property by Craig Donnell, a colleague who consistently ferrets out opportunistic deals, in Melbourne, Australia. The building was located directly opposite the University of Melbourne, and comprised 12 stories of student accommodation (277 rooms) along with ground-floor retail space and a basement. (See Figure 22.1.) There was a new 10-plus-5-plus-5-year lease in place to the university at a starting rental of A$950,000 per annum, with annual reviews in line with the consumer price index (CPI). To an outsider looking at market cap rates, returns, location, strength of lease, and in deference to the fact that the building had been completely renovated, it appeared as though the building was being offered at a price substantially above market. This would also explain why it had not sold.
However, this building also highlights the need to conduct thorough due diligence. It turns out that despite the recent renovations, the building did not comply with the fire code. Before long, the students had to be evacuated and relocated, and the university commenced legal action against the owner. We were informed that an offer would be entertained by the owner, who was eager to extricate himself from the situation.
Real Estate and Opportunities of Investing abroad
Posted by admin in Financial Advice, Investment Opportunities, Real estate, Taxes on April 30th, 2009
Bear in mind that one of the tremendous advantages of real estate is that you do not need most of the money required to buy a property—banks willingly provide those funds in the form of a mortgage. In general, banks will not lend money on real estate purchased abroad,1 so if you were to buy a NZ$10 million property in New Zealand, you may only need NZ$1 million or less as a down payment from your own country—the rest is financed locally.
If the value of this investment over time goes from NZ$10 million to NZ$20 million, then not only have you made a 1,000 percent return on your cash investment of NZ$1 million, but the NZ$10 million profit, expressed in U.S. dollars, will also have gone up (or down) according to the change in exchange rate.
Secondly, many people claim that investing overseas is unpatriotic, as it diverts resources away from your home country to other countries. This is pure nonsense for two reasons. As we have just been reminded, when you invest in real estate in a foreign country, most of the funds required for an acquisition are provided by a locally sourced mortgage. Furthermore, claiming that investing abroad diverts funds away from your own country ignores the fact that the explicit purpose of any investment is to generate a return and (should you ever sell) a capital profit, both of which will eventually be brought back to your country.
Real Estates Taxes
Posted by admin in Financial Advice, Global Markets, Money Tips, Taxes on April 26th, 2009
Although tax shouldn’t be the most important consideration when choosing a property, it’s not to be overlooked. The tax implications vary in complexity and impact according to the country you are investing in and what you intend to do with the property. In addition, you need to take into account that the United States taxes you on your worldwide income. Taxes levied on international property investments usually fall into the following categories:
- Capital acquisitions tax, inheritance tax, stamp duty, or transfer tax for purchasing, inheriting, or transferring property
- Local and national property taxes and land tax for owning and/or residing on the property
- Income tax on rents received, of which there may be additional taxes imposed on nonresident or foreign landlords
- Capital gains tax, gift taxes, or death duties and estate taxes for disposing of the property
To avoid or minimize taxation, there are countries or jurisdictions with no taxes on income or capital gains, such as the Turks and Caicos Islands. However, some of these tax havens are an option only for the very wealthy who are willing to contribute substantially to the local economy and purchase luxury real estate, and some of these locations limit the number of foreigners permitted residence or work permits. In comparison, governments in nontax-haven countries tend to impose fewer restrictions on nonresidents purchasing property, yet the likelihood is that you will face more taxes on your investment. But some high-tax countries provide advantages over the long term. For instance, in France rents over the last fifty years have averaged a net operating income (NOI) of about 7 percent, which is not terrific. But if you hold onto the property for at least fifteen years, your tax on capital gains is vastly reduced. And when you consider that property values have gone up about the same rate as rents, you will have an enormous gain.