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what is with benefit of survivorship | with benefit of survivorship refers to a legal agreement where property co owners automatically receive full ownership when another co owner dies this process avoids legal hassles involved with estate settlements understanding with benefit of survivorshipwith benefit of survivorship typically describes a form of joint tenancy ownership where when one owner dies the assets automatically pass to one or more surviving members of the agreement such agreements are often termed joint tenants with right of survivorship and they commonly occur when two or more people own big ticket items such as real estate business entities or investment accounts joint tenancy with benefit of survivorship bypasses the probate process that otherwise applies when conveying an estate s assets to survivors joint tenancy and tenancy in commonsurvivorship benefits form the basis of most decisions to enter into joint tenancy common law requires distinct circumstances to recognize a joint tenancy agreement all co owners must acquire the same title on the asset at the same time and all owners must control an equal share of the asset all owners must also have equal rights to possess the asset agreements that lack any of these requirements would fail to qualify as joint tenancy tenancy in common tic agreements offer an option for co ownership of assets without benefit of survivorship tenancy in common agreements cover all co ownership situations that fail to meet the necessary criteria for joint tenancy as well as situations in which one or more of the co owners desire to pass their ownership interest to another individual in the event of their death assets inherited from tenancy in common agreements do not avoid the probate process in the way that assets automatically passed to survivors in a joint tenancy do however joint ownership with benefit of survivorship is common in family and marital properties without this arrangement the ownership of a deceased s share of the asset would pass through probate with potentially unexpected consequences other agreements with survivor beneficiariesother elements of estate planning also involve the passage of survivor benefits specifically life insurance plans retirement plans annuities and social security benefits can automatically pass to another individual when the covered person dies in addition to the basic passage of such assets through a named beneficiary some insurance policies and annuities offer riders that allow the insurance policy or annuity itself to pass to a specified survivor after the primary insured or annuitant dies examples include variable survivorship life insurance and joint and survivor annuities example of with benefit of survivorshipif a married couple jointly owned a home with right of survivorship then ownership of the entire home would automatically pass to the surviving spouse upon their partner s death without such an agreement and in the absence of other estate planning options such as trusts the home would go through the probate process which takes time and may not always go according to the desires of all those expecting an inheritance | |
what is the difference between survivorship and beneficiary | in retirement planning a survivor is someone usually a spouse who continues to receive your benefits after you die while a beneficiary is someone who receives any remaining account balance after you die the difference is that survivorship benefits are paid out for the lifetime of the survivor while beneficiaries simply receive the remaining account balance | |
how long do survivorship benefits last | if you are eligible to collect social security benefits your spouse or surviving children may qualify for survivorship benefits these benefits may also be available to dependent parents surviving stepchildren grandchildren and disabled older children depending on their relationship to the deceased these benefits are available to surviving spouses for the remainder of their lives or to surviving children until they reach 19 adult children can also qualify if they were disabled by an injury before age 22 | |
how much are survivor benefits | the amount of survivorship benefits depends on the lifetime earnings for the deceased surviving spouses at retirement age typically earn around 100 of the benefits that the deceased would have earned alive surviving spouses who have not reached retirement age surviving children and surviving dependent parents typically receive 75 82 of the deceased s benefits the bottom linewith benefit of survivorship is a legal arrangement that allows shared ownership of a property or asset between a small group of people when one of the co owners dies their share automatically passes to the other surviving owners rather than to any children or heirs this arrangement allows ownership rights to pass without the usual hassle of estate settlements and probate | |
what are withdrawal benefits | withdrawal benefits refer to the rights of employees with pension or other retirement plans e g 401 k plans to cash out any accumulated funds upon leaving an employer if the recipient is younger than age 59 these funds must be rolled into a qualified retirement plan either at a new employer or in an individual retirement account ira or else they would typically be subject to an early withdrawal penalty and any deferred tax liability may be owed understanding withdrawal benefitswithdrawal benefits apply most often to defined contribution dc plans under which employers and employees each contribute either a fixed amount or a percentage of each employee s paycheck to a plan such as a 401 k many companies with defined contribution plans match what employees save for retirement at a fixed ratio up to a certain salary percentage such as when an employer matches 50 cents on the dollar up to 6 percent of each individual s salary 12withdrawal benefits may also apply to a defined benefit db or traditional pension plan but in most cases any earned benefits from these plans remain locked up until employees become eligible to receive them typically at age 62 1the value of withdrawal benefits depends on an individual employee s salary or pay scale years of service and possibly other factors it also varies based on whether the employee is vested some companies and unions use cliff vesting where all benefits including company matches kick in after a certain number of years while others offer graded vesting under which benefits accrue over time 3who are the recipients of withdrawal benefits withdrawal benefits come into play most often for employees who are leaving the type of midsize to large employers that tend to offer 401 k s vested employees often receive a check for any withdrawal benefits for tenured employees this may be the largest check they have ever received in their lives under a set of specific circumstances employees who are not of retirement age can roll over or transfer this check to a new employer s 401 k or to an individual retirement account ira for a set period without incurring tax liabilities or penalties 4note that most employer and union sponsored retirement plans in private industry in the u s fall under the employee retirement income security act of 1974 erisa and the internal revenue code irc 56basic rules related to withdrawal benefitsreinvesting withdrawal benefits without a penalty is fairly straightforward provided employees follow the rules any check needs to go into either a qualifying ira or retirement plan within 60 days otherwise the employee must pay tax on it this means employees much check with their new employers to be sure the new plan is qualifying 4receiving withdrawal benefits either requires employees to fill out forms or answer a series of questions online or over the phone withdrawal benefits often take a week or more to process employees age 55 or over receiving withdrawal benefits from a 401 k may be allowed to take a lump sum distribution from a defined contribution plan without paying a penalty for early withdrawal 7 the same general idea applies to iras although the minimum age is 59 in either case employees still owe ordinary income taxes 8 | |
what are withdrawal credits pension plan | a withdrawal credit in a pension plan refers to the portion of an individual s retirement assets in a qualified pension plan that the employee is entitled to withdraw when they leave a job understanding withdrawal credits pension planin the context of pension plans withdrawal credits describe the rights of an employee participant in a qualified pension plan to withdraw their portion of assets plus a share of employer contributions if applicable upon their departure from that job under most pension plans employers make periodic contributions some may allow additional contributions by the employee to a fund shared by all eligible employees each individual has an account within that fund and multiple employers may participate in a single pension fund when an eligible employee reaches retirement age they are entitled to periodic distributions that generally equal a percentage of their income in pre retirement years an employee who leaves a firm before retirement age would likely be eligible for a partial distribution of their pension funds depending on the vesting rules established by the employer and the plan withdrawal credits pension plan prior to retirement | |
when an employee leaves a firm before retirement age various factors determine the extent to which they are entitled to their pension balance most important among these is their vesting status vesting refers to the extent to which the employee has control over their retirement assets | in most cases employees contributions vest immediately and employees with longer tenures will be entitled to a greater share of employers contributions employees can roll over their pension into individual retirement accounts iras after leaving the company for public sector pensions withdrawal rules are determined on a state by state basis private pensions are subject to rules set out in the employee retirement income security act erisa of 1974 erisa and subsequent tax rules outline a complex system of policies regarding vesting and withdrawals from the many variations of defined benefit and contribution plans 1beyond the erisa guidelines employers have the discretion to structure their plans to their own needs when leaving a company it s wise to consider your own needs by educating yourself about your options and obligations about withdrawals from qualified retirement plans in a pension plan defined benefit plan the responsibility for funding an employee s retirement rests on the employer but in a defined contribution plan such as a 401 k the responsibility falls on the employee defined benefit vs defined contribution plansthe defined benefit plan is the most common type of pension plan a defined benefit plan is an employer sponsored retirement plan where employee benefits are computed using a formula that considers several factors such as length of employment and salary history defined benefit plans guarantee the retiree a set cash distribution upon retirement because the employer is responsible for making investment decisions and managing the plan s investments the employer assumes all the investment and planning risks 2in a defined contribution plan like a 401 k or a 403 b employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements the irs has set an annual contribution limit for 401 k s and defined contribution plans for 2023 the maximum contribution limit that an employee can make to a 401 k is 22 500 for 2024 that number increases to 23 000 those who are aged 50 or older can make an additional catch up contribution of 7 500 in both 2023 and 2024 sometimes the sponsoring company will match a portion of employee contributions as an added benefit however the total contribution between the employee and employer cannot exceed 66 000 in 2023 and 69 000 in 2024 for those aged 50 and over there s a 7 500 catch up contribution bringing the total contribution up to 73 500 for 2023 for 2024 the total contribution limit is 76 500 34a defined contribution plan is generally comprised of investments which the employee selects from a curated list of options that often consist of mutual funds there is no way of knowing how much a defined contribution plan will ultimately give the employee upon retiring as contribution levels can change and the returns on the investments may go up and down | |
what is better a pension or a 401 k | whether a pension or 401 k is better will depend on the individual and their financial circumstances as well as their preferences both have their pros and cons generally a pension is more stable because it provides a fixed amount of income every month from retirement till the death of the individual 401 k s are less stable because the assets are invested in the market so the value will always fluctuate a 401 k however has growth potential if you invest aggressively and well in a 401 k the amount in your account can grow substantially providing you with more money in retirement than a pension could | |
how do pensions pay out | pensions can pay out in a few different ways primarily depending on what is agreed upon with your employer or what is stipulated in the legal docs most commonly a pension pays out a fixed monthly sum it is also possible to receive the entire pension as a lump sum | |
are pensions taxed | yes your pension income is taxed and you will be taxed at your ordinary income at the time you receive your pension money the bottom linepension plans are defined benefit plans that are primarily funded by employers withdrawal credits are the amount that the employee is allowed to withdraw from their pension plan when they leave a job or for other qualified reasons pension plans used to be the primary way individuals would save for retirement however now defined contribution plans such as the 401 k are more popular | |
what is a withdrawal penalty | a withdrawal penalty refers to any penalty incurred by an individual for the early withdrawal of funds from an account that is either locked in for a stated period as in a time deposit at a financial institution e g a cd or where such withdrawals are subject to penalties by law such as from an individual retirement account ira or 401 k plan | |
how a withdrawal penalty works | a withdrawal penalty can vary depending on the type of funds or financial instrument involved along with other factors the penalty can be either in the form of forfeiture of interest or an actual dollar amount when you open an account or become a participant in a retirement plan you will generally receive in depth documentation that spells out all of the terms of the arrangement or contract this typically includes details about what constitutes an early withdrawal and what penalties if any you would incur should you decide to make an early withdrawal from that account for example an early withdrawal from a certificate of deposit cd at most financial institutions would result in the customer forfeiting interest for a period ranging from one month to several months generally speaking the longer the term of the initial certificate of deposit the longer the interest forfeiture period an alternative option to taking an early withdrawal is taking a qualified retirement plan loan withdrawal penalties for ira accountsin the case of iras withdrawals before the age of 59 are subject to a penalty of 10 of course you ll also have to pay income taxes on the amount withdrawn from a traditional ira or 401 k since it ll be considered taxable income the amount you d pay would be dependent on your total annual income and the subsequent income tax bracket 1the internal revenue service irs does allow for some exceptions to the tax penalties for early withdrawal of ira funds under certain circumstances for example the penalties may be waived if the funds were withdrawn because the person lost their job and needs funds to make the premium payments on their medical insurance policy also an early withdrawal might be exempt from tax penalties if the funds are being used for tuition expenses for the account holder their spouse or their children or grandchildren certain restrictions and conditions apply so it s important to review the rules set by the irs prior to taking any actions involving withdrawing funds early from an ira account 2it s important to note that a qualified plan such as a 401 k can have different rules and penalties for early distributions versus a traditional ira for example the early withdrawal exception for iras doesn t apply to qualified plans for those who are unemployed and wish to use ira funds for health insurance premiums 3the withdrawal penalty for taking funds from an ira or other accounts can be steep so it is wise to consider other strategies for obtaining necessary funds that would not involve the possibility of a significant penalty an alternative option might be to take a qualified retirement plan loan the proceeds of that type of loan are not taxable if the loan abides by certain rules and repayment follows the required schedule and terms 4example of a withdrawal penalty annuity surrender chargesmany deferred annuities have a withdrawal penalty in the early years of the contract known as a surrender charge in such an annuity an individual places either a lump sum of money or regular installment payments into an account often with an insurance company some years later that accumulated money is converted into a regular cash flow stream in many cases until the annuity holder dies if the annuitant chooses to take out some of the contributed funds before the annuitization phase there will be a withdrawal penalty the size of the surrender fee will vary among insurers and may be something like 10 if money is touched in the first year or two generally this penalty decreases over time so it may only be 5 in the fifth year and 1 in the tenth year as an example 5 | |
what is the 401 k early withdrawal penalty | early withdrawals from a 401 k account i e before age 59 incur a 10 penalty furthermore any deferred taxes due on that money will be owed at the time of withdrawal the penalty is the same for an individual retirement account ira 3 | |
what is the early withdrawal penalty for a cd | generally if a cd is not held to maturity there will be an early withdrawal penalty this is often in the form of interest credited for example the penalty on a 24 month cd may be six months interest note that some banks today offer cds with more flexible terms with some carrying no penalty for early withdrawals 6 | |
what is a hardship withdrawal | you may be allowed to make early withdrawals from qualified retirement accounts under special circumstances these so called hardship withdrawals can be made to cover medical emergencies funeral expenses certain education expenses and to help purchase or repair a primary residence these may carry the 10 penalty and you will still owe the deferred taxes on that money 7 | |
what is a withdrawal plan | a withdrawal plan is a financial plan that allows a shareholder to withdraw money from a mutual fund or other investment account at predetermined intervals often this type of plan is used to fund expenses during retirement however it may be used for other purposes as well | |
how a withdrawal plan works | a withdrawal plan is sometimes called a systematic withdrawal plan it is a payment structure arranged with a mutual fund in which the investor receives a set amount of funds from the fund on a periodic basis it can also refer to any strategy in which an investor liquidates a portion of his or her portfolio and extracts cash periodically such as an investor selling equity shares every year to help supplement their retirement withdrawal plans are often employed as a means of setting up a consistent flow of revenue to an individual the approach may be employed as part of a trust or family corporation setup with each child receiving a monthly or quarterly payment from the mutual fund advantages of a systematic withdrawal planthis type of arrangement with a mutual fund affords the investor an income stream during their retirement years while also maintaining exposure to further growth by keeping their remaining funds invested in the mutual fund for as long as possible by making periodic withdrawals account holders are able to enjoy average return values that often exceed average sale prices in this way they can secure higher unit prices than those attainable by withdrawing everything at once there are also tax advantages to this type of plan withdrawals are made from capital and as such long term gains are paid at a lower tax rate many individuals use these plans as part of their tax planning strategies to make the most of this lower rate of taxation with a systematic withdrawal plan an investor s money will continue to grow as long as the investment is performing at a rate that is higher than the rate of withdrawal once an investor has finished the accumulation phase most generally prefer to structure their spending so that their funds will last for an extended period of time this can be done by managing a portfolio and periodically selling assets investing in income producing securities purchasing an annuity etc downside of a systematic withdrawal planthe downside of a systematic withdrawal plan is that when your investments are down in value more of your securities must be liquidated to meet your withdrawal needs in a market correction or bear market this can have the reverse effect of a dollar cost averaging strategy actually lowering your overall internal rate of return when compared with other withdrawal strategies | |
what is withholding | withholding is the portion of an employee s wages that is not included in their paycheck but is instead remitted directly to federal tax authorities and where applicable state and local tax authorities 1the employee s income marital status number of dependents and number of jobs all determine the amount withheld these facts are recorded by the employee on a w 4 form supplied by the employer 2withholding is an estimate of the taxes the employee will owe american taxpayers file an annual tax return in order to record their actual income from all sources for the full year and the amount they have already paid this in addition to any deductions they claim determines what they actually owe for the year and triggers either an additional payment or a refund of overpaid taxes understanding withholdingin the united states all income earners are obligated to pay income tax to the federal government 4 most states have income taxes as well and a few counties and cities levy resident income taxes employers are required to withhold tax from employees paychecks to ensure that they consistently pay their income taxes employers remit the tax collected to the internal revenue service irs on behalf of the wage earners 5an employee who starts a new job must fill out irs form w 4 which the employer typically provides 2 for example the employee must indicate whether they have one or multiple jobs if they have multiple jobs they must disclose how much is earned from the other job s 6the employee is also expected to divulge their marital status if married they are asked whether the spouse is employed and how much the spouse earns 7form w 4 also includes questions about dependents and filing status such as a head of household or married filing jointly the remaining section of the form is filled out by the employer 8the employer uses the information provided by the employee to calculate the amount of tax to withhold from the employee s pay any new event that unfolds in the employee s life such as a change in marital status an additional dependent or a new job would require the employee to fill out a new w 4 the employer uses the new information to re evaluate the portion of income to withhold for tax purposes 9special considerationsif the tax withheld is inaccurate the taxpayer has to pay more or less when tax filing season arrives if the employee paid too much the irs will refund the excess workers who end up not paying enough tax on earned income may be subject to late payment penalties and interest self employed workers aren t subject to withholding but must pay their income taxes usually as quarterly estimated tax payments taxpayers may also have to make estimated tax payments if they receive substantial income in the form of dividends capital gains interest or royalties 9the information provided on form w 4 determines how much will be withheld from the employee s paycheck for taxes federal withholding vs state withholdingwithholding is generally classified as federal withholding or state withholding federal withholding is the amount withheld from wages for taxes owed to the federal government the amount of withholding is based on filing status the number of dependents certain adjustments to income and other personal withholding preferences selected on form w 4 wage earners can also elect to have a specific amount withheld in addition to what s calculated from elections they can also elect to have nothing withheld by claiming an exemption federal withholding includes amounts paid into the social security and medicare funds the employee and employer are responsible for paying an equal share of these taxes from the employees pay 6 2 is withheld for social security and 1 45 for medicare the employer pays a total of 7 65 on the employee s behalf 10state withholding is the amount withheld from wages for taxes owed to the taxpayer s state of residence in some cases the taxpayer may owe taxes to multiple states for instance if a remote worker splits their time between two residences in different states they may owe taxes to each state it may be possible for an employer to withhold taxes for each state other types of withholdingemployees who have retirement accounts through their employers have their contributions withheld from their paychecks employees who have traditional retirement accounts rather than roth accounts do not pay income tax on their contributions that is they are paying in pre tax dollars and will owe income taxes on that money only when they withdraw it that by the way reduces their income for the year and the amount of tax that is withheld from their paychecks 11employees who have roth accounts pay the income taxes on their contributions up front that is they pay taxes on their full income but pay in a portion to the retirement account they should owe no further taxes on that money when they withdraw it 12 | |
what does it mean to withhold taxes | to withhold taxes is to deduct a portion of an employee s wages for taxes and remit it immediately to the government this is an estimate of the amount that the employee will owe for that period | |
how much withholding should i claim | the amount you should withhold is based on your personal circumstances it depends on your income whether you have dependents if you have additional sources of income and more a single person with one job and no dependents would generally select a single filing status with one allowance a married couple with dependents would usually select married filing jointly with several allowances | |
should i claim 0 or 1 on my withholding | electing 0 as an allowance on the w 4 for tax withholding will result in the largest amount being withheld for your filing status claiming one allowance will reduce what is withheld for taxes but may still be sufficient for what is owed claiming 0 is preferred by people who can be claimed as dependents by others and by people who have more than one source of income | |
is it better to have taxes withheld from unemployment | the irs recommends withholding taxes from unemployment wages to avoid owing the full amount due on the tax deadline 13 | |
what is the withholding compliance program | the withholding compliance program established by the irs identifies taxpayers whose payroll deductions appear to be in error so that they can remedy the deficiency 14the bottom linewithholding is the amount deducted from wages for taxes federal state or local all wage earners in the u s have federal taxes withheld most have state taxes withheld and some have local taxes to pay as well if more than enough taxes are withheld throughout the year the taxpayer will receive a tax refund after filing an annual tax return if withholding is insufficient the taxpayer is obligated to pay the remaining tax obligation employees must complete a form w 4 to indicate what should be withheld for taxes based on their personal situation the irs provides a tax withholding estimator that taxpayers can use to estimate how much they should withhold | |
what is a withholding allowance | a withholding allowance is an exemption that reduces how much income tax an employer deducts from an employee s paycheck and transmits to the irs on their behalf this exemption from withholding is tied to the personal exemption a federal tax break that was available to all taxpayers regardless of their expenses through 2017 the tax cuts and jobs act tcja of 2017 eliminated personal exemptions for the period from 2018 to 2025 as a result the withholding allowance has no current practical relevance but that could change in 2025 when the tcja changes end for now it is no longer used on form w 4 employee s withholding certificate which the internal revenue service irs completely redesigned employees in the united states fill out and submit form w 4 to their employers so that their employers know how much to withhold from workers paychecks investopedia nez riaz | |
how withholding allowances worked in the past | before 2018 an individual was required to fill out form w 4 when hired by an employer the form required certain personal information such as their name and social security number and the number of allowances to be made 2the employer used the w 4 to determine how much of an employee s pay to subtract from their paycheck so as to remit to the tax authorities the total number of allowances claimed was important the more tax allowances claimed the less income tax would be withheld from a paycheck the fewer allowances claimed the more tax would be withheld 3the withholding amount was based on filing status single or married but filing separately married and filing jointly or head of household and the number of withholding allowances claimed on the w 4 it was important to claim the right number of allowances to avoid trouble when filing taxes or to keep from giving the government an interest free loan by paying too much in taxes only to receive the amount back later as a refund 3 | |
how to determine withholding post 2017 | much of how things worked before the passage of the tcja is the same today individuals still fill out a w 4 employers still use it to calculate how much of an employee s paycheck should be taxed and tax filing status is still key but the irs revamped and simplified the w 4 form and how taxpayers should determine their withholding now withholding amounts relate to whether an individual has multiple jobs or a spouse who works what credits they can claim and other adjustments 4for example withholding is affected if fortunately you can use the irs withholding calculator to see whether you re having the right amount withheld from your paycheck exemption from withholdingan individual can be completely exempt from withholding but it s not easy to receive that status you can claim the exemption from withholding only if you had a right to a refund of all federal income tax withheld in the prior year because you didn t have any tax liability and you expect the same for the current year you simply write exempt on form w 4 5this must be done annually the exemption doesn t automatically carry over | |
when to redetermine withholding | a new form w 4 must be filed with a taxpayer s employer whenever the taxpayer s personal or financial situation changes e g they get married have a baby or their spouse enters or leaves the workplace the new withholding goes into effect no later than the first payroll period ending 30 days after giving the revised form to the employer 6 the employer may implement it sooner but isn t required to do so it s also possible to request that a specific dollar amount be withheld in addition to other tax withholdings this may be helpful for taxpayers receiving a year end bonus or for those who simply want to boost withholding near the end of the year perhaps to cover taxes on investment income such as capital gain distributions made at the end of the year individuals can also request that an additional amount be withheld with form w 4 be sure to file a new form w 4 if your personal or financial situation changes if you don t you could end up having too little money withheld throughout the year which would affect what you must pay come tax time | |
what if too little is withheld | the short answer you are likely to owe money at tax time and if you have significantly underpaid your taxes during the year you may have to pay a penalty when you file your annual tax return if you do not have enough withheld from your paycheck you can request that your employer withhold an additional dollar sum if on the other hand you have more income withheld than you should you will receive a refund after you file your annual income tax return receiving a refund isn t necessarily a good thing it represents money you could have used throughout the year to pay your bills or invest for your future financial well being | |
how much should i have withheld from my paycheck | many people think it s better to have less money withheld from their paychecks to pay taxes alternatively others prefer to play it safe and overpay mindful that they will get a refund later on down the line neither of these approaches is smart the best option is to fill out form w 4 as accurately as possible doing so will ensure that you don t get hit with a nasty tax bill out of the blue or essentially give the irs an interest free loan | |
how is withholding determined | the withholding amount generally depends on a taxpayer s filing status number of jobs other income and whether they have dependents | |
how do employers calculate how much to withhold from employee pay | after an employee fills out form w 4 it is up to the employer to calculate how much to withhold from each paycheck for federal income taxes payroll software should have a built in calculator to work all this out alternatively employers can consult irs publication 15 t federal income tax withholding methods the bottom lineensuring that the right amount of money is withheld from each paycheck to pay federal income taxes is important employees who don t fill out form w 4 carefully can get hit with a nasty tax bill out of the blue or essentially end up lending the irs money free of charge | |
what is withholding tax | the term withholding tax refers to the money that an employer deducts from an employee s gross wages and pays directly to the government the amount withheld is a credit against the income taxes the employee must pay during the year the vast majority of people who are employed in the united states are subject to tax withholding nonresident aliens are also subject to withholding taxes on earned income as well as on other income such as interest and dividends from the securities of u s companies that they own investopedia madelyn goodnightunderstanding withholding taxtax withholding is a way for the u s government to maintain its pay as you go or pay as you earn income tax system this means taxing individuals at the source of income rather than trying to collect income tax after wages are earned whenever an employee gets paid their employer withholds a certain percentage of their paycheck as income tax this is then paid by the employer to the internal revenue service irs the amount deducted appears on the employee s paystub and the total amount deducted annually can be found on form w 2 wage and tax statement employers send w 2s to their employees each year to help them file their annual income tax returns the amount deducted depends on a number of factors these considerations include the amount an employee earns filing status any withholding allowances claimed by the employee and whether an employee requests that additional income be withheld if merited any excess is paid back to the employee by the irs as a tax refund 1the irs suggests verifying your withholding tax early in the year and whenever any changes are made to the tax law you should also check it whenever you have changes in your lifestyle filing status marriage divorce wages or when tax credits and deductions are changed 1special considerationsthe majority of u s states also have state income taxes and employ tax withholding systems to collect taxes from their residents states use a combination of the irs w 4 form and their own worksheets which residents fill out to establish their withholding nine states do not impose income tax on residents they are alaska florida new hampshire nevada south dakota tennessee texas washington and wyoming withholding tax only applies to capital gains for high earners living in washington new hampshire residents pay tax on interest and dividend income only 2 however they voted to gradually phase out this practice by 2027 34history of withholding taxestax withholding first occurred in the u s in 1862 at the order of president abraham lincoln to help finance the civil war the federal government also implemented excise taxes for the same purpose tax withholding and income tax were abolished after the civil war in 1872 56the current system was accompanied by a large tax hike when it was implemented in 1943 5 at the time it was thought that it would be difficult to collect taxes without getting them from the source most employees are subject to withholding taxes when they are hired and fill out a w 4 form the form estimates the amount of taxes that will be due 7the withholding tax is one of two types of payroll taxes the other type is paid to the government by the employer and is based on an individual employee s wages this money contributes to funding for social security and federal unemployment programs since the social security act of 1935 as well as medicare since 1966 8910investopedia s tax savings guide can help you maximize your tax credits deductions and savings order yours today types of withholding taxesthere are two types of withholding tax employed by the irs to ensure that proper tax is withheld in different situations the u s resident and nonresident withholding tax the first and more commonly discussed withholding tax is the one on u s residents personal income which every employer in the u s must collect under the current system employers collect the withholding tax and remit it directly to the government with employees paying the remainder of what they may owe when they file a tax return in april each year 11if too much tax is withheld the result is a tax refund however if not enough tax has been held back then the individual will owe money to the irs 7generally you want about 90 of your estimated income taxes withheld and sent to the government 12 this ensures that you never fall behind on income taxes something that can result in heavy penalties and that you are not overtaxed throughout the year investors and independent contractors are exempt from withholding taxes but are required to pay quarterly estimated tax 13 if these classes of taxpayers fall behind they can become liable to backup withholding which is a higher rate of tax withholding set at 24 14you can easily perform a paycheck checkup using the irs s tax withholding estimator 15 this tool helps identify the correct amount of tax withheld from each paycheck to make sure that you don t owe more when you file your annual return to use the estimator you ll need your most recent pay stubs your most recent income tax return your estimated income during the current year and other information the other type of withholding tax is levied against nonresident aliens to ensure that proper taxes are paid on income sources from within the u s 16 a nonresident alien is someone who is foreign born and has not passed the green card test or a substantial presence test 17all nonresident aliens must file form 1040nr if they are engaged in a trade or business in the u s during the year 18 if you are a nonresident alien there are standard irs deduction and exemption tables to help you figure out when you should be paying u s taxes and which deductions you may be able to claim 19 if there is a tax treaty between your country and the united states that can also affect withholding tax 20calculating your withholding taxthe irs updates marginal tax rates annually the rates for tax year 2024 are highlighted in the table below 21you can calculate your withholding tax by using the irs withholding estimator in order to get an accurate figure you ll need some basic information be sure to have the following handy when you re filling out the online form the estimator tells you how much of a refund or tax bill you can expect you can also choose an estimated withholding amount that s suitable for you | |
what is the purpose of withholding tax | the purpose of withholding tax is to ensure that employees comfortably pay whatever income tax they owe it maintains the pay as you go tax collection system in the u s it fights tax evasion as well as the need to send taxpayers big unaffordable tax bills at the end of the tax year | |
how much tax should you have withheld | the amount of income tax you contribute from each paycheck depends on several factors including total annual earnings and your filing status | |
why did my employer withhold too much or too little tax | federal tax withholding is based on the information that you provide on your w 4 form which you fill out and give to your employer when you start a job if you are significantly overpaying or underpaying on income tax you ll probably need to revise this form with more up to date information if an employer doesn t make adjustments to an employee s withholding you might need to file irs form 843 to request a refund of the over withholding who qualifies for exemption from withholding employees with no tax liability for the previous year and who expect no tax liability for the current year can use form w 4 to instruct their employer not to deduct any federal income tax from their wage this exemption is valid for a calendar year 22the bottom linewithholding tax is the amount of money that your employer holds back from your paycheck and sends to the government as payment toward your income taxes anyone who earns income is responsible for paying income tax you could get a tax refund after filing your taxes or you may owe more money part of your tax bill depends on your withholding tax if you find that you end up paying more money on tax filing day you can lower that amount by requesting that additional money be held from your paycheck on the other hand having a smaller amount deducted from every paycheck may make it easier to satisfy your tax bill at the end of the year | |
what is without evidence of insurability | without evidence of insurability means an insurance provider underwrote a policy such as for life or health insurance without verifying that the policyholder was eligible for that coverage some group plans may not require proof of insurability if the applicant applies during the open enrollment period also providers of plans offering lower or limited benefits may not need evidence of a policyholder s insurability also convertible life insurance will not require additional evidence on conversion another name for this provision may be without evidence of good health understanding without evidence of insurabilitywithout evidence of insurability insurance providers take on additional risk if a life insurance company issues a policy to someone in poor health it s more likely that the insurance company may need to pay that benefit sooner than expected for example group health insurance plans sponsored by employers may not require an employee to take a medical exam before being covered under that policy also some insurance providers may issue life or health insurance plans to individuals without evidence of insurability if the coverage amount is below a specific limit convertible insurance is a type of life insurance that allows the policyholder to change a term policy into a whole or universal policy without going through the health qualification process again named beneficiaries may be transitioned from a limited term of eligibility to an indefinite term under the convertible policy without undergoing further insurability qualifications changes may happen each year on the policy renewal date until the policyholder reaches a cut off age an insurer who insists on a medical exam or underwriting can create barriers to marketing therefore insurance companies must balance the need to accurately assess risk with the need to make insurance more readily available in many cases without evidence coverage may have limits on benefits while requiring proof of eligibility for higher levels of coverage adding to policies without evidence of insurabilityan insurance provider issuing a new life insurance policy may require proof of eligibility but allow the beneficiary to purchase additional coverage later without the need to provide further evidence this option may come as a rider within the policy policyholders may use a lower face value policy to begin and increase coverage with riders at a later date additional benefits may be allowed without evidence at specific milestones such as marriage or the birth of a child in other cases these increases may link to cost of living adjustments based on inflation indicators such as the consumer price index some insurance companies offer the ability for a policyholder to obtain coverage for a spouse without the need for them to provide proof of eligibility the same situation may apply to children | |
what is without recourse | without recourse means that one party cannot obtain a judgment against or reimbursement from a defaulting or opposing party in a financial transaction when the buyer of a promissory note or other negotiable instrument enters into a no recourse agreement they assume the risk of default understanding recoursefinancing can be extended with or without recourse under financing with recourse if the lender cannot collect on their payment from the party ultimately responsible for payment of the financial obligation the lender can go back to the borrower to seek payment on the amount due recourse may allow the lender to seize not only pledged collateral but also deposit accounts and sources of income conversely without recourse financing means that the lender takes the risk of non payment by the obligor the lender takes these risks directly and cannot seek payment or seize personal assets not specified in the debt contract sales without recourse without recourse means without liability all sales agreements entered into by a buyer and seller contain rights and responsibilities for both parties a sale without recourse means the buyer accepts all risks associated with the purchase this often occurs when items are sold as is without any guarantees the buyer has no recourse against the seller if the item does not work as expected and the seller is not obligated to compensate the buyer for any damages defects or performance issues a sale that is with recourse means that the seller bears responsibility for the sold asset if it turns out to be defective or does not perform as expected the buyer has the right to seek recourse from the seller who is often obligated to offer a replacement of equal value or provide a refund without recourse in banking | |
when a financial instrument contains the words without recourse the endorser is released from future claims if a signed check includes without recourse the endorser is not subject to liability should the check bounce due to insufficient funds | for example assume alice makes out a check to bob the payee bob decides to pay off his debt to maggie by endorsing the check which involves writing his name on the back exactly as it appears on the front of the check once the back of the check is signed it becomes negotiable and allows for the transfer of money ordered by the check in addition bob adds without recourse on the back of the check the endorser bob will not assume any responsibility for paying the check if it is returned for insufficient funds if alice s bank refuses to pay maggie s bank the check amount due to insufficient funds in alice s account maggie cannot demand payment from bob a promissory note is a debt instrument like a mortgage loan that contains a written promise by the buyer to pay the seller a definite sum of money if the loan is secured without recourse the lender often uses the mortgaged property as collateral the lender cannot hold the buyer liable however will instead recover the collateral without recourse is evident in certificates of deposit cds and securities where the seller is not required to indemnify the investor for any losses suffered such as those caused by market fluctuations | |
what does it mean to assign without recourse | loans are often sold or transferred among lenders when a loan is assigned to a new lender neither the borrower nor the new loan holder can hold the first loan originator liable for any loan related issues | |
what does without recourse mean in real estate | without recourse or non recourse debt is a type of loan secured by collateral such as real estate cited on a mortgage loan if the borrower defaults the issuer can seize the collateral but cannot seek further compensation from the borrower | |
how do i endorse a check without recourse | endorsing a check and adding without recourse to the signature means that the endorser assumes no responsibility if the check bounces for insufficient funds | |
what are wm reuters benchmark rates | wm reuters fx benchmark rates are spot and forward foreign exchange rates that are used as standard rates for portfolio valuation and performance measurement the wm reuters closing spot rate service was introduced in 1994 to provide standard forex rates that would enable portfolio valuations to be compared more accurately against each other and financial benchmarks without having to account for currency differentials 1 the wm reuters fx benchmark rates are provided by thomson reuters which acquired the rate calculation business of the world markets company wm from state street in 2016 2 basics of wm reuters benchmark ratesthe original wm reuters service provided closing spot rates for 40 currencies daily the service has since expanded to 155 closing spot currencies covered on an hourly basis in addition wm reuters also provides closing rates for currency forwards and non deliverable forwards ndf hourly intraday for spot forward and ndf rates as well as historical data 1 while most major equity and bond index compilers use the wm reuters benchmark rates in their calculations the rates are also used for other purposes such as calculating benchmark rates for the settlement of financial derivatives some banks also provide a service to their clients by providing a guarantee to trade at the wm reuters rates | |
how rates are determined | the wm reuters benchmark rates are determined over a five minute fix period from 2 minutes 30 seconds before to 2 minutes 30 seconds after the time of the fix which is generally 4 p m in london during this five minute window bid and offer rates from the order matching system and actual trades executed are captured since trades occur in milliseconds only a sample is captured rather than every trade the median bid and offer are calculated using valid rates over the fix period and the mid rate is then calculated from them 1 the importance of these rates lies in the fact that they are used to value trillions of dollars in investments held by money managers and pension funds in 2013 the method of fixing the wm benchmark rates came under intense scrutiny after widespread allegations of collusion and rate manipulation by traders surfaced 3 | |
what is a wolfe wave | a wolfe wave is a chart pattern composed of five wave patterns in price that imply an underlying equilibrium price investors who use this system time their trades based upon the resistance and support lines indicated by the pattern image by sabrina jiang investopedia 2021understanding wolfe waveswolfe wave patterns were first identified by bill wolfe and his son brian according to wolfe they occur naturally in all markets to recognize them traders must identify a series of price oscillations that correspond to specific criteria in a wolfe wave pattern the fifth wave breaks out of the channel according to the theory behind the pattern a line drawn from the point at the beginning of the first wave and passing through the beginning of the fourth wave predicts a target price for the end of the fifth wave if a trader properly identifies a wolfe wave as it forms the beginning of the fifth wave represents an opportunity to take a long or short position the target price predicts the end of the wave and therefore the point at which the trader aims to profit off the position identifying complex patterns using technical analysistechnical analysis makes use of chart patterns such as wolfe waves to predict market movements and time trades for maximum profit traders who use technical analysis look at charts depicting price movements for securities over a period of time in general technical analysis rests upon theories of supply and demand which imply certain price levels above or below which securities will struggle to trade levels of support correspond to prices low enough to attract enough demand to stabilize and raise share prices while levels of resistance correspond to prices high enough to cause shareholders to sell shares and take profits reducing demand levels and causing prices to level off or drop | |
what is word of mouth marketing | word of mouth marketing or wom marketing is when a consumer s interest in a company s product or service is reflected in their daily dialogues essentially it is free advertising triggered by customer experiences and usually something that goes beyond what they expected word of mouth marketing can be encouraged through different publicity activities set up by companies or by having opportunities to encourage consumer to consumer and consumer to marketer communications also referred to as word of mouth advertising wom marketing includes buzz viral blog emotional and social media marketing understanding word of mouth marketingword of mouth marketing differs from natural word of mouth references to a company s products and services in how it may come as the result of a promotion encouragement or other influence by a company otherwise known as seeding | |
when a diner has a wonderful time at a restaurant because their expectations were exceeded and later tweets about it or when someone had a great experience using a product in a new way and tells everyone they know about it those are examples of word of mouth marketing also word of mouth marketing does not stop at the first interaction it tends to lead to a cascade of follow on interactions | the encouragement on the part of a company may take one of several forms the best way is to give them a reason to talk such as exceeding expectations or providing insider skills or information about a product other strategies include offering consumers new ways to share information about a company s products and services and engaging and interacting with the consumer such as through exemplary customer service this is especially valuable with social media based customer service which provides for seamless sharing and promotion benefits of word of mouth marketingeighty eight percent of people around the world said they trust recommendations from people they know earned media above all other forms of advertising according to a 2021 nielsen study this shows just how effective word of mouth marketing can be 1consumers are more emotionally bonded to a company when they feel they are listened to by the company that is why many companies will have sales representatives discuss their products and services with consumers personally or through a feedback phone line this kind of interaction as well as promotional events can stimulate conversations about a company s product there is a significant temptation to fabricate word of mouth marketing accordingly the word of mouth marketing association womma crafted a code of ethics checklist for the industry advising that the best word of mouth marketing strategies are credible social measurable and respectful and there is no excuse for dishonesty 2wom marketing expert andy sernovitz has boiled down womma s code of ethics into three key rules to avoid issues | |
what are some examples of word of mouth marketing | word of mouth marketing includes the marketing tactics companies use to prompt their consumers to talk about their levels of satisfaction with the company s service or product these strategies include brand loyalty programs which reward customers for repeated business and provide them platforms for user feedback giveaways contests and sponsored influencers | |
what is the digital version of word of mouth marketing | digital word of mouth marketing employs technology particularly the internet to facilitate word of mouth exchanges review boards social media sites and blogs are popular digital platforms consumers use to share their experiences good and bad and these shared testimonials significantly influence consumer purchase decisions | |
why is word of mouth marketing so important | word of mouth marketing is important as it is an effective way to increase sales promote products and services increase brand recognition and build customer loyalty many companies employ strategies that prompt customers to recommend their services and or products and share positive experiences essentially companies create the spark that causes the firestorm of chatter among consumers and since studies show that most people trust the advice of family and friends focusing on word of mouth marketing can be more beneficial and cost effective than other forms of marketing the bottom lineword of mouth wom marketing is when a consumer shares a positive experience about a good or service wom marketing is great for businesses as it generates business without incurring additional marketing costs businesses can however purposely contribute to word of mouth marketing efforts wom marketing is usually experienced over dinner parties texts and casual encounters between friends and family it can also be set through buzz viral media blogs and social media marketing | |
what is the worden stochastic | the worden stochastics indicator represents the percentile rank of the most recent closing price compared to all of the other closing values over a specified lookback period traders use the indicator to determine if a particular security is overbought or oversold to provide trade signals and spot divergences that could signal a price reversal understanding the worden stochasticsthe worden stochastics indicator was designed by peter worden to recognize a new trading range more quickly than traditional stochastics unlike traditional stochastics that incorporate high low and closing prices the worden stochastics indicator uses rankings to avoid over weighting in outlier periods providing a potentially more accurate indication of the trading range the worden stochastic is calculated using the equation 100 n 1 x rank n represents the number of closing values in the range while rank represents the position of the closing price on a list that s sorted in ascending order by value all stochastic indicators including worden stochastics measure the level of the close relative to the range over a period of time traders use these readings to determine if a particular security is potentially trading at overbought or oversold levels trading with the worden stochasticsin general stochastic readings above 80 are considered overbought while readings below 20 are considered oversold however traders should try to confirm these sentiments with other technical indicators or chart patterns overbought doesn t necessarily mean it is time to sell nor does oversold necessarily mean it is time to buy in a strong price uptrend the stochastics readings will often reach above 80 in a strong downtrend the readings will often be below 20 the stochastic typically includes a signal line when the stochastic crosses above the signal line some traders use that as a buy signal when the stochastic crosses below the signal line that is a potential sell signal combining that concept with the ones discussed above a potential strategy would be to look for a stock or another asset in a rising trend then wait for the worden stochastic to fall below 30 or 20 when the stochastic crosses back above the signal line or moves up and out of the oversold territory consider a purchase this is not a strategy recommendation just an example in addition traders may look for bullish or bearish divergences between the security s price and stochastics trends if the price is making higher peaks while the stochastic is making lower peaks that could signal a potential downside reversal in the price if the stochastic is making higher lows while the stock is making lower lows that is bullish divergence and indicates a potential turnaround in the price divergence is not a reliable timing signal it should only be used in conjunction with other analyses and trade signals the worden stochastics vs the stochastic oscillatorthe worden variant differs from other stochastics whether the fast or slow versions via the way it is calculated most other stochastic indicators are comparing the recent closing price to high and low values over a specified period worden ranks the close relative to other closing values and then uses that rank in the calculation limitations of the worden stochasticsthe indicator is prone to providing numerous faulty signals for example the indicator will stay in oversold or overbought territory for extended periods of time during a downtrend or uptrend respectively there are also multiple crossovers with the signal line that don t result in significant price moves additionally price divergence with the indicator is not a reliable timing signal real world example of how to use the worden stochasticsthis worden stochastics example utilizes 1 through 5 as default settings signal line in blue carving three complete disney buy and sell cycles over a four month period image by sabrina jiang investopedia 2021the indicator reverses higher at the oversold level in april but the price continues to chop sideways to lower in quiet price action the indicator dips lower in early may posting a double bottom reversal that translates into a rally wave lasting nearly three weeks a mid may crossover initiates a new sell cycle as the price pulls back to test new price support near 100 the indicator turns higher in early june as the price moves toward a new high as the price transitions back down there is a bearish crossover and the stochastics slips back into the oversold territory in late june the overall trend is up at this point so the next bullish crossover above the signal line could have been used to initiate a long trade near the start of july the price and indicator ascend the indicator remains in overbought territory for much of july and early august any of the bearish crossovers could be used as sell signals a drop below 80 by the stochastics could also be used as a sell signal investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is wordpress | wordpress is a popular open source content management system cms although it was originally associated mainly with personal blogs it has since become used for a wide variety of websites including professional publications and e commerce platforms since its launch in 2003 wordpress has grown to power roughly one third of websites worldwide today it is home to a large developer community that has produced over 50 000 plugins | |
how wordpress works | users of wordpress can select from two basic versions of the service the first of these is the hosted version of wordpress which is accessible at wordpress com this version allows users to launch a website that is hosted on wordpress s own servers as such it is often favored by non technical users who may wish to avoid the complexity of hosting a website on their own private server as an additional benefit the hosted version of wordpress is automatically updated to the latest version of the wordpress software which can help mitigate against potential security breaches for more advanced users it is also possible to simply download the latest version of wordpress from wordpress org by selecting this option the user must make their own arrangements to host the software either on their own private server or from a third party hosting provider the user is then free to customize the software as they see fit but must also be responsible for manually uploading any subsequent updates because of its large user base wordpress websites are a popular target among hackers who often seek to exploit outdated versions of the software which might possess known security vulnerabilities for this reason it is likely prudent to avoid self hosting the service unless you are confident in your ability to secure and update the service alongside any additional plugins you may have installed wordpress is designed from the ground up to be highly customizable its application programming interface api covers everything from its database to theme modifications and customizations by keeping everything standardized developers can focus on building functionality on top of wordpress knowing that it will work on all installations that are kept up to date real world example of wordpressthere are many different companies that provide wordpress plugins and themes designed to extend its functionality for example woocommerce has become one of the most popular ecommerce tools for wordpress enabling users to accept orders track shipments and add other ecommerce functionality to their existing wordpress website 1 among the many other examples of plugins for wordpress are those concerned with search engine optimization seo contact forms newsletter marketing on site social media and commenting features and various design features designed to make sites more visually appealing | |
what is a work cell | a work cell is a logical and strategic arrangement of resources in a business environment these arrangements are put into place to organize and improve process flow increase efficiency reduce costs and eliminate wastage the concept of work cells is based on the platform of lean manufacturing which focuses on value creation for the end customer and reduction of wastage work cells which are also referred to as workcells are typically found in manufacturing and office environments understanding work cellsa work cell is generally set up in order to complete a specific activity most often in the manufacturing industry it is the grouping of machines people and other equipment companies use in their manufacturing production process these cells are often implemented to reduce the costs associated with production and ramp up productivity many companies also significantly reduce the rate of error by putting work cells into place in a manufacturing facility the machines involved in the production process would be arranged so the goods being produced move smoothly and seamlessly from one stage to the next this would only be possible if the machines are grouped in work cells that facilitate the logical progression of the goods being produced from raw materials at one end to finished product at the other work cells may also be found in the office or administrative departments in this context work cells may facilitate a better flow of communication and more efficient use of shared resources work cells are a product of the lean manufacturing process cellular manufacturingcellular manufacturing is a manufacturing process which is a subsection of just in time manufacturing and lean manufacturing encompassing group technology the goal of cellular manufacturing is to move as quickly as possible making a wide variety of similar products while producing as little waste as possible cellular manufacturing involves the use of multiple cells in an assembly line fashion a cell is created by consolidating the processes required to create a specific output such as a part or a set of instructions these cells allow for the reduction of extraneous steps in the process of creating the specific output facilitate quick identification of problems and encourage communication of employees within the cell in order to resolve issues that arise quickly example of a work celllet s say a firm that assembles air handling products faces high inventories and erratic delivery it originally assembled units on a traditional production line long setups and logistics required long production runs it often found that it had to pull products from finished goods and rebuild them for custom orders using a lean methodology the company assembles cells to include twelve small one to three person assembly work cells that were always set up and ready people now work in different cells each day and assemble products per customer orders finished goods inventory dropped by 96 lead time was 24 hours and productivity improved by as much as 30 | |
what is a work ticket | a work ticket is a form that shows the time spent by an employee working on a particular job it is used as a basis for billing the costs of direct labor to customers and may also be used for calculating wages of employees who are paid by the hour in the context of accounting for the hours an employee works a work ticket is also known as time card or a timesheet which are more commonly used in the context of recording how many hours a worker has put into a specific task the term work order may be used as well understanding work ticketwork tickets are used not only to ensure that hourly or temporary workers are paid for their labor they may also be used to ensure that clients are billed for work performed on their behalf but supervised by the employer work tickets may also be used to calculate labor costs track productivity create budgets forecast future labor needs keep an eye on projects and determine profit and loss work ticket vs timesheetwork tickets used for tracking the hours of an hourly or temporary employee may be on paper or exist digitally hours worked leave time accruals and adjustments may be made on such work tickets they tend to be filled out weekly bi weekly monthly or bi monthly depending on the employer s pay period such work tickets are submitted to a supervisor who then approves or amends them at which point they are sent to payroll so that payment may be made work tickets used as timesheets or timesheets that are digital such as with punch clocks or electronic timecard readers may assist in the automation of the billing or payroll process such devices may even use biometrics for added security work ticket vs work ordera timesheet used to track work performed for a customer otherwise known as a work order tends to be for services a work ticket in this context may contain instructions for a given task or some description of a problem cost estimates any applicable forms to authorize work the date and estimated labor time and costs who has made the request and who will be billed and the name of the person requesting the work for example a person who has given his car to an automobile shop for several repairs or maintenance items will receive a bill that shows the amount of time spent by different mechanics on various parts of the car as well as their billing rates the time spent by each mechanic on the car is derived from the work ticket | |
what is workable indication | workable indication is a pricing technique stated as a range which allows a dealer or broker flexibility when offering to buy or sell a particular debt instrument it primarily applies to the municipal bond market understanding workable indicationsimply put a workable indication is a nominal quote showing the price at which a dealer is willing to either buy or sell an individual bond issue this offer differs from a firm quote aka a bona fide quote which is binding on the dealer they must follow through with the deal at a price cited if the offer is accepted municipal bond dealers can also give out firm with recall or out firm quotes that can be good for roughly the next hour and then recalled a workable indication usually a one sided quote that is either a bid price or an asked price municipal bonds typically are priced on a yield to maturity basis rather than a dollar price if a dealer gives a workable indication like i last saw this issue being offered at around 3 50 they re saying they might sell the bond at a price that would result in its yield to maturity being 3 5 | |
why issue a workable indication | in a sense a nominal quote expressed in the form of workable indication might be seen as an estimate or initial offer or perhaps a starting point from which they can come to a mutually agreeable deal the dealer or broker is under no obligation to honor the workable indication and can revise it if market conditions or investor interest change workable indication allows both parties flexibility to negotiate until reaching specific figures flexible ranges work well when the dealer is in the initial stage of trying to make a deal and perhaps still gauging the interest of the potential buyers the workable indication also gives the seller the ability to assess the impact of various price levels on investors it may often be delivered in non committal terms using relatively vague language such as it s somewhere in the neighborhood of or i think it would probably be roughly around a workable indication may be offered as a starting point for negotiation or it may indicate that the bond is not being actively traded at the current time since the dealer can t immediately locate it they can t estimate the price and supply of the issue and give a firm quote on it 1special considerationsto fully appreciate how a workable indication tactic might be used in a bond trading scenario it is helpful to understand the atmosphere in which the buying and selling of munis typically takes place trading for municipal bonds is usually within a secondary or inter dealer market this is the marketplace where institutional investors banks bond funds insurance companies retail individual investors and small businesses go to purchase bonds and where bond dealers are offering issued munis for sale in contrast to the stock market where the action tends to be a bit more fast paced with frantic bursts of activity and the pressure to make quick decisions the municipal bond market is generally more relaxed participants don t have to move fast instead they can haggle and mull over the offer while trying to negotiate the best possible deal in such an arena a workable indication is often the starting point of the transaction process however even in the muni bond market there is always the possibility that another potential buyer will swoop in and express interest in a particular issue then the scenario may get more competitive and buyers may need to think fast deciding whether to increase their offers or to drop out of the bidding | |
what is workers compensation | workers compensation also known as workers comp provides benefits to workers who become injured or ill on the job due to a work related accident workers comp covers medical costs healthcare benefits income for lost wages educational retraining and disability pay workers compensation is a state government mandated program but the required benefits vary from state to state texas is the only state that does not require employers to maintain workers compensation insurance 1understanding workers compensationformerly known as workman s comp workers compensation provides benefits to those who have suffered due to work related accidents injuries and illness workers comp helps employees while out of work by providing several types of benefits that can include private insurance companies pay for most workers compensation programs from premiums paid by individual employers each state has a workers compensation board a state agency that oversees the program and intervenes in disputes 5federal workers compensation programs also exist covering federal and energy employees as well as longshore and harbor workers another federal program the black lung program handles death and disability benefits for coal miners and their dependents 6employers cannot require employees to pay for the cost of workers compensation 7workers compensation benefitsrequirements for workers compensation vary from state to state and some states do not cover all employees for example some states exclude small businesses from the mandate for coverage while others have different requirements for various industries the national federation of independent business nfib maintains a summary of each state s worker compensation requirements 8workers compensation pays for lost wages to an employee but at a reduced amount meaning less than your total salary typically programs pay about two thirds of the worker s gross pay 9in many cases the worker cannot return to work due to the injury called temporary total disability and gets compensated while recovering the worker returns to the job following a period of rehabilitation or therapy however some workers get compensated for longer periods if they suffer some type of permanent disability whether partial or full disability 10workers compensation benefits are not usually taxable at the state or federal level compensating for much of the lost income 11 however you may pay taxes on your workers compensation benefits if you also receive income from the social security disability or supplemental security income programs most compensation plans offer coverage of medical expenses only related to injuries incurred as a direct result of employment for example a construction worker could claim compensation for an injury suffered in a fall from scaffolding but not for an injury incurred while driving to the job site in other situations workers can receive the equivalent of sick pay while on medical leave if an employee dies due to a work related incident the worker s dependents receive the workers compensation payments recipients waive the right to sueby agreeing to receive workers compensation workers give up their right to sue their employer for negligence this concession helps protect both the workers and employers workers give up further recourse in exchange for guaranteed compensation while employers consent to a degree of liability while avoiding the potentially greater cost of a negligence lawsuit workers compensation is available only to employees injured on the job it is not the same as disability insurance or unemployment benefits special considerationsan employer may dispute a workers compensation claim since disputes can arise over whether the employer is liable for an injury or illness in that case the workers compensation board can help resolve disputes workers compensation payments are susceptible to insurance fraud an employee may falsely report that their injury was sustained on the job exaggerate the severity of an injury or invent an injury the national insurance crime board asserts that there are organized criminal conspiracies of crooked physicians attorneys and patients who submit false claims to medical insurance companies for workers compensation and other benefits 12in most states only regular employees are eligible for workers compensation independent contractors are not that was one of the main points of contention in the debate over a california ballot measure that sought to extend employee benefits to drivers for ride sharing apps like uber and lyft like the so called gig economy the issue of workers compensation and other benefits for contract workers isn t going away since gig workers have increased from 2012 to 2021 by nearly 5 million and represent 3 of the workforce 13access to workers compensation benefits is a key issue for participants in the gig economy contractors and freelancers are rarely eligible types of workers compensationin the u s individual states handle workers compensation rules the u s department of labor houses an office of workers compensation programs still it is responsible only for covering federal employees longshoremen and harbor workers energy employees and coal miners 14the lack of federal standards for workers compensation has resulted in extremely varied policies for the same kinds of injuries from state to state identical injuries can receive radically different kinds of compensation depending on where a worker resides a paper by the occupational safety and health administration osha flatly calls workers compensation a broken system it estimates that 50 of the costs of workplace injury and illness are borne by the individuals who suffer them low wage and immigrant workers often don t even apply for benefits 15workers compensation coverage a vs coverage bthere are two types of workers compensation coverage coverage a and coverage b coverage a includes all of the state mandated benefits that an injured or ill employee is entitled to receive from the employer s insurance 16 it covers salary replacement payments as well as medical care rehabilitation and death benefits as necessary all states except texas have such benefits although they vary widely from state to state and many states exclude some employees from eligibility coverage b pays benefits that exceed the minimums required by coverage a they usually are paid only as the result of a successful lawsuit brought by the employee for negligence or other misconduct by the employer workers who accept workers compensation generally waive the right to sue their employers agreeing to a no fault contract however state legislation and court rulings in a number of states have restored the employees right to sue in various strictly defined circumstances thus an employer may opt to purchase a policy that combines coverage a and coverage b who pays workers compensation insurance premiums the employer pays workers compensation insurance premiums in other words there is no payroll deduction like there is with social security benefits the employer must pay workers compensation benefits as established by individual state laws | |
how much does workers compensation cost | the cost of workers compensation insurance averages 45 per month but varies by state as do the mandated benefits there also are different rates depending on whether the employees covered are performing low risk or high risk jobs the insurance fees are based on the company s payroll numbers just as examples | |
how do you apply for workers compensation | the rules for applying for workers compensation vary by state in general a worker with a job related injury or illness should you can follow through with the employer s insurance company to ensure a claim was filed if your claim is denied you can appeal the decision with your state s workers compensation board who is exempt from workers compensation generally only employees are eligible for workers compensation contractors and freelancers are not beyond that every state writes its own rules for example arkansas specifically excludes farm laborers and real estate agents from eligibility idaho excludes domestic workers louisiana excludes musicians and crop dusting airplane crew members 8the bottom lineevery state except texas requires employers to provide workers compensation coverage to at least some of their employees the states write the rules so there are many exceptions and exemptions contractors and freelancers are rarely covered and many states exclude certain professions from the mandate or otherwise limit the scope of the benefits most states have online sites that can help determine if you re covered by workers compensation insurance for example florida s division of workers compensation has information on its program links to forms and a database to check whether your employer has coverage 18 | |
what is workers compensation coverage a | workers compensation coverage a refers to an insurance policy that protects employees under state laws and provides medical care death disability and rehabilitation benefits for workers who are injured or killed while on the job the insurer agrees to pay all compensation and benefits related to the insured employer s state s workers compensation laws without any regard to liability workers compensation coverage premiums are based on the employer s payroll and the type of duties its employees perform 1understanding workers compensation coverage a | |
when an employee is injured disabled or dies while on the job the employee or their survivors are entitled to workers compensation coverage a benefits under this type of insurance the employer pays certain benefits such as medical care lost wages and rehabilitation costs 3 | the benefits of workers compensation are generally awarded on a no fault basis as long as the employee is not under the influence of drugs including alcohol employees are usually required to submit to a drug test following an on the job accident many workers compensation incidents provide partial reimbursement of lost wages and survivor benefits in the event the worker is killed while on the job 2workers compensation part a satisfies state insurance requirements 3 it funds employees medical bills related expenses and lost wages in the case of a covered workers compensation loss payments made are normally based on predetermined schedules in the case of defined injuries expenses are paid accordingly as the adjuster calculates them if a company fails to carry workers compensation coverage it can result in fines ranging from 1 000 to 10 000 or more and even jail time depending on the state or jurisidction workers compensation part a has no policy limits and the insurer instead pays all benefits required by the workers compensation law of any state listed in the declarations however the employer can be held responsible for payments made by the insurer that exceed regular workers compensation benefits 2 under such circumstances an employer would be responsible for such payments due to the following under this misconduct the employer is responsible for reimbursing the insurer for any payments that exceed regular workers compensation benefits special considerationsworkers compensation part a is legally mandated in nearly every state in the united states and is a significant expense for employers employers may pay more if the company has had a certain number of previous claims or if its employees have certain occupations that are deemed dangerous workers compensation coverage continued to grow in every state per the national academy of social insurance the most recent data for 2018 shows a 7 2 increase from 2014 to 2018 in covered jobs this puts the number of covered jobs to just over 142 6 million for 2018 meanwhile covered wages rose 8 7 over the same period however employer costs rose 3 5 and benefits paid fell 1 7 4workers compensation part a vs part bworkers compensation part b also covers medical care lost wages and rehab costs for employees who are injured on the job but unlike part a part b coverage covers employees when the employer is liable through negligence or otherwise which is also why it s called employers liability coverage 52while part a covers state requirements part b pays additional damages up to certain limits meaning that part b includes part a but goes beyond part a s coverage payments for part b are determined based on the type of injury policy terms and the insurer example part b limits may look something like part b is not commonly used but there can be circumstances in which having this policy benefits the company most commonly these occur when the company is sued by a family member of the injured party or by a third party part b can also be needed if the damages owed go above and beyond part a coverage example of workers compensation coverage ajohn works at factory abc a company that makes steel pipes the company is serious about safety and has implemented many safety standards that employees should follow these include gloves when working with hot steel boots that cover the entire foot and that also come with grips to prevent slipping one day john is moving steel pipes down a ramp when he slips on a puddle of water that has accumulated from a leaky pipe despite wearing boots with grips he still fell he breaks his leg and damages nerves in the process he requires surgery and needs to be out of work for six months john s health insurance pays for his broken leg and a portion of the surgery but not all of the surgery factory abc has workers compensation coverage a as mandated by the state and the compensation coverage can pay for the remainder of john s medical bill as well as his salary while he is recovering for six months the coverage also includes rehabilitation costs | |
what does workers comp cover | workers comp covers employees that get sick or injured while on the job it includes death benefits disability benefits compensation for lost wages medical expenses and lawsuits 2who is covered by workers comp coverage generally all employees are covered by workers compensation all non military federal employees are covered by the federal employment compensation act feca 6 employees working for private companies are generally covered as most states require coverage it is important to check with your employer and state to determine what kind of coverage you have | |
how is workers comp calculated | compensation is commonly based on the average weekly wage the calculation involves multiplying the daily wage of the employee by the number of days worked in a full calendar year the resulting number is then divided by 52 weeks to arrive at the average weekly wage 7 | |
how much does workers comp cost | the cost of workers compensation varies based on factors such as the state of employment a company s annual total payroll the industry the type of work done the insurer and the company s claims history the average cost across the nation is 936 per employee per year or 78 a month | |
is workers comp taxable | no the benefits that employees receive as part of workers compensation are not taxable the only time that workers compensation benefits might be taxable is if you are also receiving social security disability insurance ssdi and a portion of those benefits have been offset by the benefits from workers compensation coverage 8the bottom lineworkers compensation coverage a protects employees under state law and provides medical care death disability and rehabilitation benefits for workers who are injured or killed while on the job companies are required to carry workers compensation coverage a and claims are paid without any regard to liability workers compensation coverage protects employees but it also protects employers from incurring significant legal and medical costs if they were sued by an injured employee | |
what is workers compensation coverage b | workers compensation coverage b is an insurance policy that covers medical care lost income and rehabilitation costs for employees who are injured on the job it provides coverage to employees when the employer is liable | |
how workers compensation coverage b works | workers compensation coverage b is also called employers liability coverage 1 employers are required by state and federal statutes to provide coverage for their employees 3 corporate insurance buyers get workers compensation insurance to protect their workers and meet state insurance requirements part b includes the two distinct parts of most standard workers compensation contracts parts a and b 1part a satisfies state insurance requirements and part b will respond to pay additional damages the policy will fund employees medical bills related expenses and lost wages in the case of a covered workers compensation loss payments are made normally based on predetermined schedules in the case of defined injuries expenses are paid accordingly as the adjuster calculates them 4 it covers under workers compensation coverage b workers who are injured on the job can be provided with 100 coverage of all medical expenses a percentage of lost wages which varies by state and policy a lump sum for disability and disfigurement and a death benefit this coverage is required in most states if a company has three or more employees including the owners of uninsured subcontractors plus their employees for one year 1special considerationsthere are important things to remember when reviewing workers compensation coverage it s important to make sure that part b employers liability is appropriately scheduled on your corporate umbrella as mentioned earlier employer negligence claims can be large thus the umbrella policy can sit on top of a normal 1 000 000 primary limit 5 additionally if a business resides in a monopolistic state like ohio wc provided by the state you will need to buy the employers liability normally from your general liability provider as an endorsement 6example of workers compensation coverage bin the case of an employee injury and potential employer negligence part b will respond to pay additional damages these payments are normally litigated and triggered by a serious injury proven to be caused by employer negligence 1 for instance an employee notices a faulty or exposed wire on a production machine and notifies their employer the employer for whatever reason does not fix the wire and the employee is electrocuted employers liability would respond in the case of the employee or their family to pay a claim above and beyond the normal part a statutory amount it is normally enacted by a lawsuit | |
what is workflow | workflow describes the steps in a business work process through which a piece of work passes from initiation to completion and how these steps can be executed and automated according to a set of procedural rules organizations use workflow to coordinate tasks improve organizational efficiency add responsiveness and drive profitability workflow may be sequential with each step contingent upon completion of the previous one or parallel with multiple steps occurring simultaneously understanding workflowthe concept of workflow was important to the study of the rational organization of work processes these processes optimize manufacturing or informational processes to avoid bottlenecks known as triage after ww2 the quality movement developed several workflow improvement theories which embraced more qualitative notions of business process re engineering these philosophies could be applied to car assembly lines a loan application by a bank or the production of a newspaper six sigma and total quality management tqm are two process improvement philosophies that have been embraced by organizations around the world tqm is a structured approach to overall organizational management where internal guidelines and process standards reduce errors the goal of six sigma is to reduce defects through quality control six sigma emphasizes cycle time improvement while at the same time reducing manufacturing defects to a level of no more than 3 4 occurrences per million units or events in other words the system is a method to work faster with fewer mistakes 1workflow technologies and big dataworkflow technologies and management systems are being used today in industries as wide ranging as finance healthcare marketing and higher education they have been fundamental to the development of artificial intelligence ai and machine learning systems that are having a significant impact on corporate workflows in every industry thanks to their ability to process and extract value from big data by gathering and sharing data across an organization and embedding analytics enterprise data management systems are used to eliminate information silos and optimize business processes and automate data processing this has helped to connect previously disconnected sectors and industries finance is being transformed by big data using it for both trading and compliance workflows investors are tapping into the flood of real time data produced by global digitalization and social media and experimenting with enhanced data analytics and ai to generate investment ideas free of cognitive bias and manage risk workflow in the digital erathe need to manage projects across different teams locations and time zones has seen a huge rise in the popularity of workflow apps and software this trend has only accelerated in 2021 as more companies connect with their employees remotely during the coronavirus pandemic some of the more popular workflow management software out there includes easynote trello monday com and accelo these platforms make it easy to create tasks and assign them to different people while managing the entire workflow through a dashboard that acts as a central hub best of all many of these platforms provide free access to key features keeping costs low for startups and small businesses | |
what is working age population | the working age population is the total population in an area that is considered able and likely to work it is based on the number of people in a predetermined age range that age range can vary but it usually begins with older teenagers and goes into retirement age such as 18 64 or 15 64 the working age population measure is used to give an estimate of the total number of potential workers within an economy this is useful for understanding a variety of economic statistics understanding the concept of working age populationthe number of people in a specific age range will determine the working age population this number is the number of capable employees available in an economy a country or other specified region this measurement does not distinguish between those who are gainfully employed and those who are seeking employment within the range the working age population measurement is designed to analyze how many people are most likely to be ready and able to work the working age population is a different statistic from the working population working population measures how many people in a region are employed regardless of their age | |
what is working capital | working capital also known as net working capital nwc is the difference between a company s current assets like cash accounts receivable customers unpaid bills and inventories of raw materials and finished goods and its current liabilities such as accounts payable and debts it s a commonly used measurement to gauge the short term financial health and efficiency of an organization investopedia yurle villegasunderstanding working capitalworking capital is calculated from the assets and liabilities on a corporate balance sheet focusing on immediate debts and the most liquid assets calculating working capital provides insight into a company s short term liquidity and efficiency a company with positive working capital generally has the potential to invest in growth and expansion but if current assets don t exceed current liabilities the company has negative working capital and may face difficulties in growth paying back creditors or even avoiding bankruptcy in corporate finance current refers to a time period of one year or less current assets are those that can be converted into cash within 12 months while current liabilities are obligations that must be paid within the same timeframe 2the amount of working capital needed varies by industry company size and risk profile industries with longer production cycles require higher working capital due to slower inventory turnover alternatively bigger retail companies interacting with numerous customers daily can generate short term funds quickly and often need lower working capital working capital formulato calculate working capital subtract a company s current liabilities from its current assets both figures can be found in public companies publicly disclosed financial statements though this information may not be readily available for private companies working capital current assets current liabilitiesworking capital is often expressed as a dollar figure for example if a company has 100 000 in current assets and 30 000 in current liabilities it has 70 000 of working capital this means the company has 70 000 at its disposal in the short term if it needs to raise money for any reason a business can either have positive or negative working capital it s worth noting that while negative working capital isn t always bad and can depend on the specific business and its lifecycle stage prolonged negative working capital can be problematic components of working capitalworking capital consists of current assets and current liabilities a company s balance sheet contains all working capital components though it may not need all the elements discussed below for example a service company that doesn t carry inventory will simply not factor inventory into its working capital calculation current assets are economic benefits that the company expects to receive within the next 12 months the company has a claim or right to receive the financial benefit and calculating working capital poses the hypothetical situation of liquidating all items below into cash current liabilities encompass all debts a company owes or will owe within the next 12 months the overarching goal of working capital is to understand whether a company can cover all of these debts with the short term assets it already has on hand theresa chiechi investopedia 2019limitations of working capitalworking capital can be very insightful in determining a company s short term health however some downsides to the calculation can make the metric sometimes misleading here are four limitations of working capital special considerationsmost major new projects like expanding production or entering into new markets often require an upfront investment reducing immediate cash flow therefore companies needing extra capital or using working capital inefficiently can boost cash flow by negotiating better terms with suppliers and customers companies can forecast future working capital by predicting sales manufacturing and operations forecasting helps estimate how these elements will impact current assets and liabilities on the other hand high working capital isn t always a good thing it might indicate that the business has too much inventory or isn t investing excess cash alternatively it could mean a company fails to leverage the benefits of low interest or no interest loans another financial metric the current ratio measures the ratio of current assets to current liabilities unlike working capital it uses different accounts in its calculation and reports the relationship as a percentage rather than a dollar amount example of working capitalas of march 2024 microsoft msft reported 147 billion of total current assets which included cash cash equivalents short term investments accounts receivable inventory and other current assets 3the company also reported 118 5 billion of current liabilities which comprise accounts payable current portions of long term debts accrued compensation short term income taxes short term unearned revenue and other current liabilities 3therefore as of march 2024 microsoft s working capital metric was approximately 28 5 billion if microsoft were to liquidate all short term assets and extinguish all short term debts it would have almost 30 billion remaining cash | |
how do you calculate working capital | working capital is calculated by taking a company s current assets and deducting current liabilities for instance if a company has current assets of 100 000 and current liabilities of 80 000 then its working capital would be 20 000 common examples of current assets include cash accounts receivable and inventory examples of current liabilities include accounts payable short term debt payments or the current portion of deferred revenue | |
why is working capital important | working capital is crucial for businesses to remain solvent even a profitable business can face bankruptcy if it lacks the cash to pay its bills for example if a company has 1 million in cash from retained earnings and invests it all at once it might not have enough current assets to cover its current liabilities | |
is negative working capital bad | generally yes if a company s current liabilities exceed its current assets this indicates the company lacks the short term resources to pay its debts and must find ways to meet its short term obligations however a short period of negative working capital may not be an issue depending on the company s stage in its business life cycle and its ability to generate cash quickly | |
how can a company improve its working capital | a company can improve its working capital by increasing current assets and reducing short term debts to boost current assets it can save cash build inventory reserves prepay expenses for discounts and carefully extend credit to minimize bad debts to reduce short term debts a company can avoid unnecessary debt secure favorable credit terms and manage spending efficiently the bottom lineworking capital is critical to gauge a company s short term health liquidity and operational efficiency you calculate working capital by subtracting current liabilities from current assets providing insight into a company s ability to meet its short term obligations and fund ongoing operations positive working capital generally means a company has enough resources to pay its short term debts and invest in growth and expansion conversely negative working capital indicates potential cash flow problems which might require creative financial solutions to meet obligations working capital is a useful measure to track still it s important to look at the types of assets and liabilities and the company s industry and business stage to get a more complete picture of its finances | |
what is a working capital loan | a working capital loan is a loan that is taken to finance a company s everyday operations these loans are not used to buy long term assets or investments and are instead used to provide the working capital that covers a company s short term operational needs those needs can include costs such as payroll rent and debt payments in this way working capital loans are simply corporate debt borrowings that are used by a company to finance its daily operations understanding working capital loanssometimes a company does not have adequate cash on hand or asset liquidity to cover day to day operational expenses and thus will secure a loan for this purpose companies with high seasonality or cyclical sales may rely on working capital loans to help with periods of reduced business activity investopedia nez riazmany companies do not have stable or predictable revenue throughout the year manufacturing companies for example may have cyclical sales that correspond with the needs of retailers most retailers sell more products during the fourth quarter that is during the holiday season than at any other time of the year to supply retailers with the proper amount of goods manufacturers typically conduct most of their production activity during the summer months readying inventories for the fourth quarter push then when the end of the year hits retailers reduce manufacturing purchases as they focus on selling through their inventory which subsequently reduces manufacturing sales manufacturers with this type of seasonality often require a working capital loan to pay wages and other operating expenses during the quiet period of the fourth quarter the loan is usually repaid by the time the company hits its busy season and no longer needs the financing businesses can also pledge their inventory to secure funds with warehouse financing missed payments on a working capital loan may hurt the business owner s credit score if the loan is tied to their personal credit types of financing include a term loan a business line of credit or invoice financing a form of short term borrowing extended by a lender to its business customers based on unpaid invoices business credit cards which allow you to earn rewards can also provide access to working capital pros and cons of working capital loansthe immediate benefit of a working capital loan is that it s easy to obtain and lets business owners efficiently cover any gaps in working capital expenditures the other noticeable benefit is that it is a form of debt financing and does not require an equity transaction meaning that a business owner maintains full control of their company even if the financing need is dire some working capital loans are unsecured if this is the case a company is not required to put down any collateral to secure the loan however only companies or business owners with a high credit rating are eligible for an unsecured loan businesses with little to no credit have to securitize the loan a collateralized working capital loan that needs asset collateral can be a drawback to the loan process however there are other potential drawbacks to this type of working capital loan interest rates are high in order to compensate the lending institution for risk furthermore working capital loans are often tied to a business owner s personal credit and any missed payments or defaults may hurt their credit score | |
what is working capital management | working capital management is a business strategy designed to manage a company s working capital a company s working capital refers to the capital it has left over after accounting for its current liabilities working capital management ensures that a company operates efficiently by monitoring and using its current assets and liabilities to their most effective use the efficiency of working capital management can be quantified using ratio analysis investopedia sydney saporitounderstanding working capital managementworking capital is a key metric used to measure a company s short term financial health and well being it is the difference between a company s current assets and current liabilities as such it is the capital that is left after accounting for its current liabilities working capital management is a strategy that companies use to manage their leftover cash current assets include anything that can be easily converted into cash within 12 months these are the company s highly liquid assets some current assets include cash accounts receivable ar inventory and short term investments current liabilities are any obligations due within the following 12 months these include accruals for operating expenses and current portions of long term debt payments 1the primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short term operating costs and short term debt obligations a company s working capital is made up of its current assets minus its current liabilities 1working capital management monitors cash flow current assets and current liabilities using ratio analysis such as working capital ratio collection ratio and inventory turnover ratio 2working capital management componentscertain balance sheet accounts are more important when considering working capital management though working capital often entails comparing all current assets to current liabilities there are a few accounts that are more critical to track the core of working capital management is tracking cash and cash needs this involves managing the company s cash flow by forecasting needs monitoring cash balances and optimizing cash flows inflows and outflows to ensure that the company has enough cash to meet its obligations because cash is always considered a current asset all accounts should be considered however companies should be mindful of restricted or time bound deposits to manage capital companies must be mindful of their receivables this is especially important in the short term as they wait for credit sales to be completed this involves at the end of the day having completed a sale does not matter if the company is unable to collect payment on the sale account payables refers to one aspect of working capital management that companies can take advantage of that they often have greater control over while other aspects of working capital management may be uncontrollable such as selling goods or collecting receivables companies often have a say in how they pay suppliers what the credit terms are and when cash outlays are made companies primarily consider inventory during working capital management as it may be the most risky aspect of managing capital when inventory is sold a company must go to the market and rely on consumer preferences to convert inventory to cash if this cannot be completed quickly the company may be forced to have its short term resources stuck in an illiquid position alternatively the company may be able to quickly sell the inventory but only with a steep price discount types of working capitalin its simplest form working capital is the difference between current assets and current liabilities however different types of working capital may be important to a company to best understand its short term needs | |
why manage working capital | working capital management can improve a company s cash flow management and earnings quality through the efficient use of its resources management of working capital includes inventory management as well as management of accounts receivable and accounts payable working capital management also involves the timing of accounts payable like paying suppliers a company can conserve cash by choosing to stretch the payment of suppliers and to make the most of available credit or may spend cash by purchasing using cash these choices also affect working capital management in addition to ensuring that the company has enough cash to cover its expenses and debt the objectives of working capital management are to minimize the cost of money spent on working capital and maximize the return on asset investments 1working capital management ratiosthree ratios that are important in working capital management are the working capital ratio the collection ratio and the inventory turnover ratio the working capital ratio or current ratio is calculated by dividing current assets by current liabilities this ratio is a key indicator of a company s financial health as it demonstrates its ability to meet its short term financial obligations 2a working capital ratio below 1 0 often means a company may have trouble meeting its short term obligations that s because the company has more short term debt than short term assets to pay all of its bills as they come due the company may need to sell long term assets or secure external financing 2working capital ratios of 1 2 to 2 0 are considered desirable as this means the company has more current assets compared to current liabilities however a ratio higher than 2 0 may suggest that the company is not effectively using its assets to increase revenues for example a high ratio may indicate that the company has too much cash on hand and could be more efficiently utilizing that capital to invest in growth opportunities 2the collection ratio also known as days sales outstanding dso is a measure of how efficiently a company manages its accounts receivable the collection ratio is calculated by multiplying the number of days in the period by the average amount of outstanding accounts receivable this product is then divided by the total amount of net credit sales during the accounting period to find the average amount of average receivables companies most often simply take the average between the beginning and ending balances 2the collection ratio calculation provides the average number of days it takes a company to receive payment after a sales transaction on credit note that the dso ratio does not consider cash sales if a company s billing department is effective at collecting accounts receivable the company will have quicker access to cash which is can deploy for growth meanwhile if the company has a long outstanding period this effectively means the company is awarding creditors with interest free short term loans 2another important metric of working capital management is the inventory turnover ratio to operate with maximum efficiency a company must keep sufficient inventory on hand to meet customers needs however the company also needs to strive to minimize costs and risk while avoiding unnecessary inventory stockpiles 3the inventory turnover ratio is calculated as the cost of goods sold cogs divided by the average balance in inventory again the average balance in inventory is usually determined by taking the average of the starting and ending balances the ratio reveals how rapidly a company s inventory is used in sales and replaced a relatively low ratio compared to industry peers indicates a risk that inventory levels are excessively high meaning a company may want to consider slowing production to ease the cost of insurance storage security or theft alternatively a relatively high ratio may indicate inadequate inventory levels and risk to customer satisfaction 3working capital cyclein addition to the ratios discussed above companies may rely on the working capital cycle when managing working capital working capital management helps maintain the smooth operation of the net operating cycle also known as the cash conversion cycle ccc this is the minimum amount of time required to convert net current assets and liabilities into cash the working capital cycle is a measure of the time it takes for a company to convert its current assets into cash or the working capital cycle represents the period measured in days from the time when the company pays for raw materials or inventory to the time when it receives payment for the products or services it sells during this period the company s resources may be tied up in obligations or pending liquidation to cash the inventory cycle represents the time it takes for a company to acquire raw materials or inventory convert them into finished goods and store them until they are sold during this stage the company s cash is tied up in inventory though it starts the cycle with cash on hand the company agrees to part ways with working capital with the expectation that it will receive more working capital in the future by selling the product at a profit the ar cycle represents the time it takes for a company to collect payment from its customers after it has sold goods or services during this stage the company s cash is tied up in accounts receivable though the company can part ways with its inventory its working capital is now tied up in accounts receivable and still does not give the company access to capital until these credit sales are received the ap cycle represents the time it takes for a company to pay its suppliers for goods or services received during this stage the company s cash is tied up in accounts payable on the positive side this represents a short term loan from a supplier meaning the company can hold onto cash even though they have received a good on the negative side this creates a liability that needs to be managed limitations of working capital managementwith strong working capital management a company should be able to ensure it has enough capital on hand to operate and grow however there are downsides to the approach working capital management only focuses on short term assets and liabilities it does not address the long term financial health of the company and may sacrifice the best long term solution in favor of short term benefits even with the best practices in place working capital management cannot guarantee success the future is uncertain and it s challenging to predict how market conditions will affect a company s working capital whether there are changes in macroeconomic conditions and customer behavior or there are disruptions in the supply chain a company s forecast of working capital may simply not materialize as expected while effective working capital management can help a company avoid financial difficulties it may not necessarily lead to increased profitability working capital management does not inherently increase profitability make products more desirable or increase a company s market position companies still need to focus on sales growth cost control and other measures to improve their bottom line as that bottom line improves working capital management can simply enhance the company s position | |
what is working capital management | working capital management aims at more efficient use of a company s resources by monitoring and optimizing the use of current assets and liabilities the goal is to maintain sufficient cash flow to meet its short term operating costs and short term debt obligations while maximizing its profitability working capital management is key to the cash conversion cycle or the amount of time a firm uses to convert working capital into usable cash | |
why is the current ratio important | the current ratio or the working capital ratio indicates how well a firm can meet its short term obligations it s also a measure of liquidity if a company has a current ratio of less than 1 0 this means that short term debts and bills exceed current assets which could be a signal that the company s finances may be in danger in the short run | |
why is the collection ratio important | the collection ratio also known as days sales outstanding is a measure of how efficiently a company can collect on its accounts receivable if it takes a long time to collect it can be a signal that there will not be enough cash on hand to meet near term obligations working capital management tries to improve the collection speed of receivables | |
why is the inventory ratio important | the inventory turnover ratio shows how efficiently a company sells its inventory a relatively low ratio compared to industry peers indicates a risk that inventory levels are excessively high while a relatively high ratio may indicate inadequate inventory levels the bottom lineworking capital management is at the core of operating a business without sufficient capital on hand a company is unable to pay its bills process its payroll or invest in its growth companies can better understand their working capital structure by analyzing liquidity ratios and ensuring their short term cash needs are always met | |
what is working capital turnover | working capital turnover is a ratio that measures how efficiently a company is using its working capital to support sales and growth it s also known as net sales to working capital working capital turnover measures the relationship between the funds used to finance a company s operations and the revenues a company generates to continue operations and turn a profit investopedia crea taylorworking capital turnover formulaworking capital turnover net annual sales average working capital begin aligned text working capital turnover frac text net annual sales text average working capital end aligned working capital turnover average working capitalnet annual sales | |
what is the working class | working class is a socioeconomic term used to describe persons in a social class marked by jobs that provide low pay require limited skill or physical labor typically working class jobs have reduced education requirements unemployed persons or those supported by a social welfare program are often included in the working class understanding the working classwhile working class is typically associated with manual labor and limited education blue collar workers are vital to every economy economists in the united states generally define working class as adults without a college degree many members of the working class are also defined as middle class sociologists such as dennis gilbert and joseph kahl who was a sociology professor at cornell university and the author of the 1957 textbook the american class structure 1 identified the working class as the most populous class in america other sociologists such as william thompson joseph hickey and james henslin say the lower middle class is largest in the class models devised by these sociologists the working class comprises between 30 to 35 of the population roughly the same number in the lower middle class according to dennis gilbert the working class comprises those between the 25th and 55th percentile of society karl marx described the working class as the proletariat and that it was the working class who ultimately created the goods and provided the services that created a society s wealth marxists and socialists define the working class as those who have nothing to sell but their labor power and skills in that sense the working class includes both white and blue collar workers manual and menial workers of all types excluding only individuals who derive their income from business ownership and the labor of others types of working class jobsworking class jobs today are quite different than the working class jobs in the 1950s and 1960s americans working in factories and industrial jobs have been on the decline for many years today most working class jobs are found in the services sector and typically include oftentimes working class jobs pay less than 15 per hour and some of those jobs do not include health benefits in america the demographics surrounding the working class population is becoming more diverse approximately 59 of the working class population is comprised of white americans down from 88 in the 1940s african americans account for 14 while hispanics currently represent 21 of the working class in the u s 2 history of the working class in europein feudal europe most were part of the laboring class a group made up of different professions trades and occupations a lawyer craftsman and peasant for example were all members neither members of the aristocracy or religious elite similar hierarchies existed outside europe in other pre industrial societies the social position of these laboring classes was viewed as ordained by natural law and common religious belief peasants challenged this perception during the german peasants war in the late 18th century under the influence of the enlightenment a changing europe could not be reconciled with the idea of a changeless god created social order wealthy members of societies at that time tried to keep the working class subdued claiming moral and ethical superiority | |
what is the working class | working class is a socioeconomic term used to describe persons in a social class marked by jobs that provide low pay require limited skill or physical labor typically working class jobs have reduced education requirements unemployed persons or those supported by a social welfare program are often included in the working class understanding the working classwhile working class is typically associated with manual labor and limited education blue collar workers are vital to every economy economists in the united states generally define working class as adults without a college degree many members of the working class are also defined as middle class sociologists such as dennis gilbert and joseph kahl who was a sociology professor at cornell university and the author of the 1957 textbook the american class structure 1 identified the working class as the most populous class in america other sociologists such as william thompson joseph hickey and james henslin say the lower middle class is largest in the class models devised by these sociologists the working class comprises between 30 to 35 of the population roughly the same number in the lower middle class according to dennis gilbert the working class comprises those between the 25th and 55th percentile of society karl marx described the working class as the proletariat and that it was the working class who ultimately created the goods and provided the services that created a society s wealth marxists and socialists define the working class as those who have nothing to sell but their labor power and skills in that sense the working class includes both white and blue collar workers manual and menial workers of all types excluding only individuals who derive their income from business ownership and the labor of others types of working class jobsworking class jobs today are quite different than the working class jobs in the 1950s and 1960s americans working in factories and industrial jobs have been on the decline for many years today most working class jobs are found in the services sector and typically include oftentimes working class jobs pay less than 15 per hour and some of those jobs do not include health benefits in america the demographics surrounding the working class population is becoming more diverse approximately 59 of the working class population is comprised of white americans down from 88 in the 1940s african americans account for 14 while hispanics currently represent 21 of the working class in the u s 2 history of the working class in europein feudal europe most were part of the laboring class a group made up of different professions trades and occupations a lawyer craftsman and peasant for example were all members neither members of the aristocracy or religious elite similar hierarchies existed outside europe in other pre industrial societies the social position of these laboring classes was viewed as ordained by natural law and common religious belief peasants challenged this perception during the german peasants war in the late 18th century under the influence of the enlightenment a changing europe could not be reconciled with the idea of a changeless god created social order wealthy members of societies at that time tried to keep the working class subdued claiming moral and ethical superiority | |
what is working interest | working interest is a term for a type of investment in oil and gas drilling operations in which the investor is directly liable for a portion of the ongoing costs associated with exploration drilling and production as part of the investment working interest owners also fully participate in the profits of any successful wells this stands in contrast to royalty interests in which an investor s cost is usually limited to the initial investment also resulting in a lower potential for large profits understanding working interestworking interest also referred to as operating interest provides investors with a percentage ownership of the drilling operation functioning as a lease providing the investor a right to participate in drilling activities and a right to the resources produced from that activity along with deriving an income from the production of the resource the investors are also responsible for a percentage of the expenses related to its acquisition there are two types of working interest operated and non operated operated working interest has a designated operator that makes all operational decisions the operator selects wells determines drilling and handles all the day to day operations a non operated working interest member is not involved in daily operations but is consulted on production decisions the well operator after operating expenses have been covered divides any additional funds between those holding a working interest creating the source of income those holding a working interest may deduct certain costs such as those associated with the depreciation of equipment advantages and disadvantages of working interestwith all types of investments there are going to be advantages and disadvantages investing in a working interest related to oil and gas the advantages and disadvantages are as follows tax implications of working interest incomesince most working interest income is treated as self employment income because the investor is part of a partnership it will generally be taxed as such meaning that an investor will not be held to net investment income surtax but to social security and medicare since regular income tax payments are not automatically withheld from these funds investors are responsible for making estimated tax payments based on the current internal revenue service irs standards and rates as of 2020 the self employment tax rate is 15 3 in the united states 1additionally if the investor receives free resources such as natural gas service to his property from the company with the associated leasing rights these amounts may also qualify as income and may be taxed as such investors with working interests are eligible for certain tax deductions based on the operating costs associated with the business this can include business expenses of a tangible or intangible nature such as equipment costs or utility payments risks of working interestas there is a potential downside for financial loss and other liabilities due to investing in a working interest an individual should take steps to reduce that risk it is recommended that when entering into a working interest investment an individual sets up a limited liability company llc or other tax partnerships the main reason to do so is to be protected from any liability an llc can protect investors from risks incurred in the working interest conversely it can protect the working interest from liabilities incurred by the investor on the other hand individuals can look to investing in royalty interests that may provide an opportunity to participate in oil and gas investments with a lower level of risk than a working interest while working interest investments require continuous input from investors in regards to expenses risking larger losses if expenses outweigh income royalty interests generally require no additional funding from those investors making additional losses beyond the initial investment less likely | |
what is the working ratio | the working ratio measures a company s ability to recover operating costs from annual revenue it is calculated by taking total annual expenses excluding depreciation and debt related expenses and dividing it by the annual gross income this is the formula for calculating working ratio working ratio tae depreciation debt expenses annual gross income where tae total annual expenses begin aligned text working ratio frac text tae text depreciation text debt expenses text annual gross income textbf where text tae text total annual expenses end aligned working ratio annual gross incometae depreciation debt expenses where tae total annual expenses understanding the working ratiothe working ratio is tasked with gauging a company s financial sustainability all businesses will incur costs to operate and generate sales these costs range from rent equipment and inventory charges to marketing staff wages and insurance those who are unable to consistently clear these expenses and pay their bills aren t running a viable business and probably won t be in business for long the threshold for this ratio is one any number below that indicates that the company is able to recover operating costs lower figures are synonymous with expenses eating up a small chunk of gross income conversely a ratio above one implies that the company isn t breaking even and generating enough money to cover its costs a ratio of one means a company s annual gross income is equal to its total expenditure so anything below that implies the company is able to recover operating costs whereas anything above reflects its inability to do so example of the working ratioxyz inc has been making widgets since the 1900s and is seen in the industry as a somewhat antiquated brand xyz hasn t spent very much money overhauling its machinery over the years and is still using old technology to manufacture its end product management argues that not upgrading to the latest model has saved it money that can be better spent elsewhere the problem is the equipment it uses is power intensive and expensive to run and maintain relative to newer versions this means that continuing to use the old technology actually works out to be more expensive in the long run to make matters worse xyz is also losing market share every year to its more modern competitors sales are falling and costs are rising leading to a progressively higher working ratio recently it rose above one the tipping point and analysts fear it will continue to climb putting the business in danger of reneging on payments unless drastic changes are soon made to slash costs and catch up with the competition limitations of the working ratiothe working ratio is not perfect and cannot be fully relied on to determine a company s financial health and ability to cover expenses with the money it brings in one issue is that it does not take financing costs into consideration this oversight can lead to misleading results particularly as most companies borrow money to fund growth and are required to pay back these loans together with interest punctually the ratio also does not account for projected changes in operating expenses in some industries operating costs have a tendency to fluctuate from year to year and in certain periods can be uncharacteristically low or high for a good reason if the company has cash tucked away to bankroll extra costs and is poised to generate extra revenues off them in the future its current high working ratio shouldn t necessarily be a cause for alarm special considerations | |
when applying ratios investors are advised to not always take the number that is generated at face value context is important and further digging to see if there is a reasonable explanation behind unusual results is a must | in general every ratio tends to overlook something important that ultimately means that it s usually necessary to consult several at the same time to get an accurate more complete picture of how the subject is faring the more information that is taken into consideration the better chance investors have at making more informed decisions about where to allocate their money | |
what is the working tax credit wtc | the working tax credit wtc is a state benefit offered to individuals living in the united kingdom who work and have a low income it was introduced in april 2003 as a means tested benefit a central part of the welfare state in the united kingdom a means tested benefit is a payment available to people who demonstrate that their income and capital are below specified limits 12 | |
how the working tax credit wtc works | you are only eligible for the wtc if you already receive the child tax credit the working tax credit wtc is available for individuals aged 25 and above or with a qualifying disability applicants must be gainfully employed and working a minimum number of hours required each week as determined by the applicant s age 2wtc qualificationsto qualify you must work a certain number of hours depending on your age and fulfill other requirements as seen here 2 | |
what counts as work is broad it includes work for someone else as an employee or worker someone who is self employed or a combination of both if you are self employed the work must have the goal of making a profit and be commercial regular and organized 2 | wtc paymentsthe wtc base can pay out 2 280 annually with additional qualifications bringing that figure up or down here is what you can receive based on specific circumstances 3eligible individuals will receive payments directly into their bank account or building society account every week or every four weeks typically you will be paid from the point you made your first claim to the end of the tax year 3if citizens are not eligible to claim the wtc they need to pursue the universal credit instead the universal credit has been set up to replace several of the existing credits in the united kingdom 4welfare programs in the u s public welfare is a common term for public assistance in the united states people are said to be receiving welfare or assistance when they are in receipt of a variety of government subsidies or benefits these payments can range from federally funded initiatives like social security payments and the supplemental nutrition assistance program snap to state sponsored programs while only the public welfare program goes by that name most of these programs are considered types of assistance programs because they are put in place to assist those who need them either temporarily or on a long term basis many of these programs are paid for by a combination of taxes that are withheld from taxpayer paychecks programs like social security are directly paid into by each individual taxpayer while some other programs receive funding from other broader taxes 5these subsidies aren t entirely without cost to the recipient some require applicants to attend classes or apply to a certain number of jobs a week in the case of social security and disability benefits a portion of the payment may be taxable depending on income limitations 67each assistance program has its own guidelines and qualifications anyone looking for additional information on whether they qualify for state or federal aid should consult the federal website for that specific program who gets the working tax credit in the u k the working tax credit wtc in the u k seeks to provide monetary support to low income individuals to receive the credit one must meet different qualifications such as already receiving the child tax credit being of a certain age and correspondingly working a certain number of hours or if you are disabled also working a certain number of hours your type of employment must also meet the required qualifications 2 | |
what is the income limit for the working tax credit in the u k | there is no income limit for the working tax credit in the u k to be eligible and what you receive depends on a variety of qualifications but there is no income limit to determine if and what you will receive as a credit 2 | |
how often is the working tax credit paid in the u k | the working tax credit in the u k is paid either every week or every four weeks you will be paid from the time you file your first claim to the end of the tax year 3the bottom linethe working tax credit wtc in the u k seeks to assist individuals working with low income and who already receive the child tax credit for those who do not qualify the u k does provide the universal credit the programs are welfare programs that seek to improve the quality of living for a certain segment of the population | |
what is a workout agreement | a workout agreement is a contract mutually agreed to between a lender and borrower to renegotiate the terms on a loan that is in default often in the case of a mortgage that is in arrears generally the workout includes waiving any existing defaults and restructuring the loan s terms and covenants a workout agreement is only possible if it serves the interests of both the borrower and the lender understanding workout agreementsa mortgage workout agreement is intended to help a borrower avoid foreclosure the process by which the lender assumes control of a property from the homeowner due to a lack of payment as stipulated in the mortgage agreement at the same time it helps the lender recoup some of their funds that would otherwise be lost in the process the renegotiated terms will generally provide some measure of relief to the borrower by reducing the debt servicing burden through accommodative measures provided by the lender examples of relief can include extending the term of the loan or rescheduling payments while the benefits to the borrower of a workout agreement are obvious the advantage to the lender is that it avoids the expense and trouble of payment recovery efforts such as foreclosure for workouts in real estate or a collection lawsuit other types of workout agreements can involve different kinds of loans and even involve liquidation scenarios a business that becomes insolvent and cannot meet its debt obligations may seek an arrangement to appease creditors and shareholders special considerations with workout agreementsfor borrowers general best practices to consider when negotiating or thinking about negotiating a workout agreement with a lender include the following mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report to the consumer financial protection bureau or with the u s department of housing and urban development hud 2 | |
what is a workout market | the workout market is an estimation of what trading prices will adjust to within the foreseeable future known as a market maker prediction understanding workout marketsthe workout market characteristics are most commonly found within thin markets prices determined by the workout market can be subject to mark ups on the securities that are being traded due to the sometimes volatile nature of thin markets these prices are also limited by the availability of the security being traded the estimation does not guarantee that the prices predicted will come to fruition external factors can still influence the fiscal health of the market but these predictions are considered a fair estimation a market maker can be either an individual or firm that frequently trades in securities from their own accounts this allows for easier trading for other investors but it also allows the maker to profit from the rapid rise and fall of prices some markets appoint a market maker for each security to facilitate easier trades in that individual sector market makers are particularly influential during thin markets as there is a reduced volume of buyers and sellers across the board this results in less liquidity among assets and larger pricing gaps between market quotes a market maker who is still trading in their own inventory will have more influence on the price of these assets as there will be fewer external investors bidding on them potentially driving prices up or down limit orders in a workout marketa limit order is a pre established price point at which an investor wishes to execute transactions this limit could reference either a minimum or maximum trading point and apply to both purchasing and selling as an example an investor may tell their broker that their limit for purchasing a new share is 50 at the same time they may also inform their broker that they will only entertain sales of assets that will net them at least 100 per transaction this allows the broker the freedom to make trades quickly while still acting on the investor s interests the broker can execute these individual transactions without having to wait for express communication on specific trades so long as they meet the limit order criteria in a workout market this can allow brokers to act fast on quickly changing prices for example if a market maker has predicted that shares of xyz company will be selling at 45 a share by the end of the day and the broker is aware of her investor s desire to purchase these shares they can keep an eye on this market and secure as many shares as the limit order states this allows the broker investor and the market maker each to take advantage of quickly fluctuating prices in a thin market | |
what is a workout period | a workout period is the period of time when temporary yield discrepancies occur between fixed income securities and are subsequently adjusted a workout period can be viewed as a sort of reset period in which bond issuers and credit rating agencies review outstanding fixed income issues and adjust or disseminate any information that the public can use to rectify discrepancies in price or yield or to correct any inefficiencies in the market and best reflect the risk reward profile of the bond compared with similar bonds in the market understanding workout periodssometimes the yield relationship among similar bonds is misaligned in the fixed income market for instance the yield on two otherwise identical bonds with exactly the same coupon and maturity may vary considerably this apparent mis pricing is expected to be corrected during a period known as the workout period the workout period could last a short amount time say a few days or it could extend for a period equal to the entire duration of the bond s life which would be the worst case scenario in terms of market efficiency during the workout period the value of a bond held in a portfolio may drop as trading continues as the price is likely to be discounted as new information comes to light investors may take advantage of the workout period by participating in a bond swap to profit from re alignment of any inefficiencies for example if an investor believes that the yield spread between two bonds is fundamentally too wide they could buy the relatively lower yielding bond in order to sell the higher yielding bond in an attempt to capitalize on the price or yield discrepancy as the spread converges if the investor has evaluated the expected workout period correctly the investor will enjoy a quick gain from the yield adjustment as they come back into line generally the larger the yield differentials and the shorter the workout period the greater the potential return from the bond swap workout periods and lendingthe workout period can also be observed on the lending side of the debt market when a borrower defaults on a loan the term of the loan may be extended by the lender to allow more time for the lender to recover its outstanding debt during this recovery process the borrower makes efforts to repay as much as they possibly can on the loan when no further payments can be paid by the borrower or obtained by the lender the default is deemed to be resolved and the recovery process ends the time elapsed from the default date to the resolved date is the workout period | |
what is a work in progress wip | in production and supply chain management the term work in progress wip describes partially finished goods awaiting completion wip refers to the raw materials labor and overhead costs incurred for products that are at various stages of the production process wip is a component of the inventory asset account on the balance sheet these costs are subsequently transferred to the finished goods account and eventually to the cost of sales wips are one of the components of a company s balance sheet the wip figure reflects only the value of those products in some intermediate production stages this excludes the value of raw materials not yet incorporated into an item for sale the wip figure also excludes the value of finished products being held as inventory in anticipation of future sales investopedia ellen lindnerunderstanding works in progress wip wip is a concept used to describe the flow of manufacturing costs from one area of production to the next and the balance in wip represents all production costs incurred for partially completed goods production costs include raw materials labor used in making goods and allocated overhead | |
when combs are manufactured plastic is moved into production as a raw material then labor costs are incurred to operate molding equipment since the combs are only partially completed all costs are posted to wip when the combs are completed the costs are moved from wip to finished goods with both accounts being part of the inventory account costs are moved from inventory to cost of goods sold cogs when the combs are eventually sold | a piece of inventory is classified as a wip whenever it has been been worked on that is to say labor has been applied to it but has not reached final goods status only some but not all necessary labor has been performed with it wip along with other inventory accounts can be determined by various accounting methods across different companies thus it is important for investors to discern how a company is measuring its wip and other inventory accounts one company s wip may not be comparable to another s allocations of overhead can be based on labor hours or machine hours for example wip is also an asset on the balance sheet it is standard practice to minimize the amount of wip inventory before reporting is necessary since it is difficult and time consuming to estimate the percentage of completion for an inventory asset this also helps companies save on storage and reduce the risk of obsolescence works in progress also may be called in process inventory or work in process inventory special considerationsaccountants use several methods to determine the number of partially completed units in wip in most cases accountants consider the percentage of total raw material labor and overhead costs that have been incurred to determine the number of partially completed units in wip the cost of raw materials is the first cost incurred in this process because materials are required before any labor costs can be incurred for accounting purposes process costing differs from job costing which is a method used when each customer s job is different job costing tracks the costs e g cost of materials labor and overhead and profits for a specific job and it allows accountants to trace expenses for each job for tax purposes and for analysis scrutinizing costs to see how they can be reduced for example suppose xyz roofing company provides its residential clients bids for roof repair or replacement each roof is a different size and will require specific roofing equipment and a varying number of labor hours each bid lists the labor material and overhead costs for the work on the other hand a process costing system tracks accumulates and assigns costs associated with the manufacturing of homogeneous products consider a company that manufactures plastic combs the plastic is put into a mold in the molding department and is then painted before being packaged as the combs move from one department molding to painting to packaging to another more costs are added to production raw material costs appear on the balance sheet as a current asset though sometimes a single line item is used that also includes wip and finished goods inventory work in progress vs work in processwork in process represents partially completed goods these goods are also referred to as goods in process for some work in process refers to products that move from raw materials to finished products in a short period an example of a work in process may include manufactured goods work in progress as mentioned above is sometimes used to refer to assets that require a considerable amount of time to complete such as consulting or construction projects this differentiation may not necessarily be the norm so either term can be used to refer to unfinished products in most situations this inventory is found on a manufacturing company s balance sheet this account of inventory like the work in progress may include direct labor material and manufacturing overhead works in progress vs finished goodsthe difference between wip and finished goods is based on the inventory s stage of relative completion which in this instance means saleability wip refers to the intermediary stage of inventory in which inventory has started its progress from the beginning as raw materials and is currently undergoing development or assembly into the final product finished goods refer to the final stage of inventory in which the product has reached a level of completion where the subsequent stage is the sale to a customer the terms work in progress and finished goods are relative terms made in reference to the specific company accounting for its inventory they are not absolute definitions of actual materials or products it s incorrect to assume that finished goods for one company would also be classified as finished goods for another company for example sheet plywood may be a finished good for a lumber mill because it s ready for sale but that same plywood is considered raw material for an industrial cabinet manufacturer as such the difference between wip and finished goods is based on an inventory s stage of completion relative to its total inventory wip and finished goods refer to the intermediary and final stages of an inventory life cycle respectively | |
what does work in progress mean in accounting | in supply chain management work in progress wip refers to goods that are partially completed they may also be referred to as in process inventory this covers everything from the overhead costs to the raw materials that come together to form the end product at a given stage in the production cycle in accounting wip is considered a current asset and is categorized as a type of inventory | |
is work in progress a form of inventory | a piece of inventory becomes labeled as work in progress when raw material combines with labor when the product is finalized it switches from wip to being categorized as a finished product finally when the product is sold it moves from a form of inventor to cost of goods sold cogs on the balance sheet | |
how is work in progress calculated | in accounting inventory that is work in progress is calculated in a number of different ways typically to calculate the amount of partially completed products in wip they are calculated as the percentage of the total overhead labor and material costs incurred by the company a construction company for example may bill a company based on various stages of the project where it may bill when it is 25 or 50 completed and so forth the bottom linea work in progress on a company s balance sheet represents the labor raw materials and overhead costs of unfinished goods unfinished is defined as goods still being manufactured and not ready to be sold to consumers they are considered to be current assets companies often try to limit what is reported as unfinished because it is difficult to estimate the percentage of completion for works in progress work in progress sometimes is used interchangeably with work in process but work in progress typically refers to more time consuming projects such as construction work in process typically refers to goods that are manufactured relatively quickly |
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