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how do i calculate the average cost | you calculate the average cost by dividing the total amount in dollars invested in a mutual fund position by the number of shares owned | |
is average cost basis method the only type of cost basis method | no many brokerage firms default to the average cost basis method for mutual funds but other methods are available these include first in first out fifo last in first out lifo high cost low cost and specific identification the bottom linethe average cost basis method calculates the value of mutual fund positions held in a taxable account to determine the profit or loss for tax reporting cost basis represents the initial value of an investor s security or mutual fund | |
what is average cost method | average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced average cost method is also known as weighted average method eliana rodgers investopediaunderstanding average cost methodbusinesses that sell products to customers have to deal with inventory which is either bought from a separate manufacturer or produced by the company itself items previously in inventory that are sold off are recorded on a company s income statement as cost of goods sold cogs cogs is an important figure for businesses investors and analysts as it is subtracted from sales revenue to determine gross margin on the income statement to calculate the total cost of goods sold to consumers during a period different companies use one of three inventory cost methods average cost method uses a simple average of all similar items in inventory regardless of purchase date followed by a count of final inventory items at the end of an accounting period multiplying the average cost per item by the final inventory count gives the company a figure for the cost of goods available for sale at that point the same average cost is also applied to the number of items sold in the previous accounting period to determine the cogs example of average cost methodfor example consider the following inventory ledger for sam s electronics assume the company sold 72 units in the first quarter the weighted average cost is the total inventory purchased in the quarter 113 300 divided by the total inventory count from the quarter 100 for an average of 1 133 per unit the cost of goods sold cogs will be recorded as 72 units sold 1 133 average cost 81 576 the cost of goods available for sale or inventory at the end of the period will be the 28 remaining items still in inventory 1 133 31 724 benefits of average cost methodaverage cost method requires minimal labor to apply and is therefore the least expensive of all the methods in addition to the simplicity of applying average cost method income cannot be as easily manipulated as other inventory costing methods companies that sell products that are indistinguishable from each other or that find it difficult to find the cost associated with individual units will prefer to use average cost method this also helps when there are large volumes of similar items moving through inventory making it time consuming to track each individual item special considerationsone of the core aspects of u s generally accepted accounting principles gaap is consistency the consistency principle requires a company to adopt an accounting method and follow it consistently from one accounting period to another for example businesses that adopt average cost method need to continue to use this method for future accounting periods this principle is in place for the ease of financial statement users so that figures on the financials can be compared year over year a company that changes its inventory costing method must highlight the change in its footnotes to the financial statements and apply the same method retroactively to prior period comparative financial statements 1 | |
what is the average cost method formula | the average cost method formula is calculated as total cost of goods purchased or produced in period total number of items purchased or produced in period average cost for periodthe result can then be applied to both the cost of goods sold cogs and the cost of goods still held in inventory at the end of the period | |
why should i use average cost method | average cost method is a simple inventory valuation method especially for businesses with large volumes of similar inventory items instead of tracking each individual item throughout the period the weighted average can be applied across all similar items at the end of the period | |
what inventory cost methods are acceptable under generally accepted accounting principles gaap | u s gaap allows for last in first out lifo first in first out fifo or average cost method of inventory valuation on the other hand international financial reporting standards ifrs do not allow lifo because it does not typically represent the actual flow of inventory through a business 2the bottom lineaverage cost method is one of three inventory valuation methods it assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced | |
what is the average daily balance method | the average daily balance method is a common way that credit card issuers calculate the interest charges cardholders have to pay it is based on the card s outstanding balances on each day of the billing period understanding the average daily balance methodthe federal truth in lending act tila requires credit card issuers to disclose their method of calculating finance charges as well as the annual percentage rate apr fees and other terms on the card in their terms and conditions statement providing these details makes it easier for consumers to compare different credit cards to calculate their finance charges card issuers can use any of several different methods among them are if you pay your credit card balance in full each month you won t have to pay interest | |
how the average daily balance method works | the average daily balance method can take several different forms including calculations made with or without compounding in either case the formula is average daily balance x daily periodic rate x number of days in the billing cycle interest charge for that monththe computations with and without compounding differ in how they define daily balance in the average daily balance method with compounding the issuer takes the balance at the beginning of each day adds any new charges for that day plus any interest charges on the previous day s balance and then subtracts any payments or credits made that day 1the issuer then adds up all of the daily balances and divides that total by the number of days in the billing cycle the result is the average daily balance following the formula above the average daily balance is then multiplied by the daily periodic rate the annual percentage rate divided by the number of days in the year and finally by number of days in the billing cycle the result is how much the card issuer will charge in interest for that month 1the average daily balance method without compounding works much the same way except that the card issuer doesn t add in the previous day s interest in determining the daily balances because of that the interest does not compound as it does with the other method 1the method with compounding will be more expensive for cardholders and more lucrative for card issuers than the one without other variations on the average daily balance method include average daily balance including new purchases and average daily balance excluding new purchases the former works like the average daily balance method explained above the latter doesn t add in purchases made during that billing period until the next period 2average daily balance method examplehere s a simplified example of the average daily balance method without compounding suppose a credit card has a balance of 1 000 at the beginning of the billing period and an apr of 20 or 0 20 that apr translates into a daily periodic rate of about 0 055 or 0 00055 the cardholder makes a 100 purchase on day 10 of the billing period raising their balance to 1 100 and but no other purchases or payments during the month which happens to have 30 days using this average daily balance method the card issuer would multiply 1 000 by 10 for the first 10 days and 1 100 by 20 for the 20 remaining days that total would be 32 000 10 000 22 000 the issuer would then divide 32 000 by 30 the number of days in the billing period to arrive at an average daily balance of 1066 67 finally to compute the interest charge for the full 30 day billing period the issuer would multiply the average daily balance of 1066 67 by the daily periodic rate of 0 055 and then by 30 in other words 1066 67 x 0 00055 x 30 17 70 one method that s been bannedin years past some credit card companies used a method known as double cycle billing which based its calculations on the customer s average daily balance over the last two billing cycles that sometimes resulted in cardholders paying interest on debt they had already paid off the practice was banned by the credit card accountability responsibility and disclosure act of 2009 better known as the card act | |
what is a grace period | a grace period is a span of time between the end of the billing period and when your credit card payment is due if you pay off your balance before the grace period ends you can avoid paying interest grace periods tend to last for at least 21 days but can be longer and they may not apply to all charges such as cash advances 34 | |
how can you find out if your credit card uses the average daily balance method | the credit card agreement you received when you signed up for the card will tell you what method the issuer uses to determine your finance charges along with other information if you no longer have a copy you can request one from the issuer according to the consumer financial protection bureau by law the issuer must make your agreement available to you upon request 5 | |
is credit card interest tax deductible | not anymore according to the internal revenue service credit card and installment interest incurred for personal expenses cannot be deducted on your tax return 6 prior to tax reforms in 1986 however it was deductible 7the bottom linethe average daily balance method is the most commonly used way of computing finance charges on credit cards today knowing how it works may save you some money but you ll save even more if you can pay your balance in full each month and not incur interest in the first place | |
what is the average daily rate adr | the average daily rate adr is a metric widely used in the hospitality industry to indicate the average revenue earned for an occupied room on a given day the average daily rate is one of the key performance indicators kpi of the industry another kpi metric is the occupancy rate which when combined with the adr comprises revenue per available room revpar all of which are used to measure the operating performance of a lodging unit such as a hotel or motel understanding the average daily rate adr the average daily rate adr shows how much revenue is made per room on average the higher the adr the better a rising adr suggests that a hotel is increasing the money it s making from renting out rooms to increase the adr hotels should look into ways to boost price per room hotel operators seek to increase adr by focusing on pricing strategies this includes upselling cross sale promotions and complimentary offers such as free shuttle service to the local airport the overall economy is a big factor in setting prices with hotels and motels seeking to adjust room rates to match current demand to determine the operating performance of a lodging the adr can be measured against a hotel s historical adr to look for trends such as seasonal impact or how certain promotions performed it can also be used as a measure of relative performance since the metric can be compared to other hotels that have similar characteristics such as size clientele and location this helps to accurately price room rentals calculating the average daily rate adr the average daily rate is calculated by taking the average revenue earned from rooms and dividing it by the number of rooms sold it excludes complimentary rooms and rooms occupied by staff average daily rate rooms revenue earned number of rooms sold text average daily rate frac text rooms revenue earned text number of rooms sold average daily rate number of rooms soldrooms revenue earned example of the average daily rate adr if a hotel has 50 000 in room revenue and 500 rooms sold the adr would be 100 50 000 500 rooms used for in house use such as those set aside for hotel employees and complimentary ones are excluded from the calculation real world exampleconsider marriott international mar a major publicly traded hotelier that reports adr along with occupancy rate and revpar for 2019 marriott s adr increased by 2 1 from 2018 to 202 75 in north america the occupancy rate was fairly static at 75 8 taking the adr and multiplying it by the occupancy rate yields the revpar in marriott s case 202 75 times 75 8 equates to a revpar of 153 68 which was up 2 19 from 2018 the difference between the average daily rate adr and revenue per available room revpar the average daily rate adr is needed to calculate the revenue per available room revpar the average daily rate tells a lodging company how much they make per room on average in a given day meanwhile revpar measures a lodging s ability to fill its available rooms at the average rate if the occupancy rate is not at 100 and the revpar is below the adr a hotel operator knows that it can probably reduce the average price per room to help increase occupancy limitations of using the average daily rate adr the adr does not tell the complete story about a hotel s revenue for instance it does not include the charges a lodging company may charge if a guest does not show up the figure also does not subtract items such as commissions and rebates offered to customers if there is a problem a property s adr may increase as a result of price increases however this provides limited information in isolation occupancy could have fallen leaving overall revenue lower | |
what is average daily trading volume adtv | average daily trading volume adtv is the average number of shares traded within a day in a given stock daily volume equates to how many shares are traded each day but this can be averaged over a number of days to find the average daily volume average daily trading volume is an important metric because high or low trading volume attracts different types of traders and investors many traders and investors prefer higher average daily trading volume over low trading volume because with high volume it is easier to get into and out of positions low volume assets have fewer buyers and sellers and therefore it may be harder to enter or exit at a desired price 1 | |
how average daily trading volume is used in trading | traders and investors alike pay close attention to adtv because it provides valuable information about the liquidity and market interest in a particular security the key uses of adtv are as follows image by sabrina jiang investopedia 2023illustration of adtv usein this hypothetical situation a stock trader has analyzed general electric ge and decides based on fundamental and technical analysis that ge is a trading opportunity it should also be noted that this trader is working for a 1 billion hedge fund the trader is constrained by a limit that permits trading only up to 10 of the value of shares traded in any stock this limit is set to avoid affecting the price of the stock the maximum allocation for ge for this hedge fund is 5 million while the minimum allocation for ge is 250 000 the image shows the candlestick chart of ge from early june 2022 to the middle of march 2023 the adtv is represented by the blue line across the volume section tradingviewon june 10 2022 the adtv for ge is 7 39 million shares which is equals approximately 404 8 million in shares traded overall ge is a suitable trading opportunity for the hedge fund as the adtv is well above the stock s maximum allocation the trader assesses the liquidity and volume volatility of ge and decides to enter the position when the volume traded crosses above the adtv this is to ensure that the trades will be executed seamlessly and that the trade won t impact the stock price significantly this occurs at point 1 on the chart where 23 12 million shares were traded at an approximate value of 1 29 billion the closing price of ge at point 1 is 55 80 a share this volume crossed above the adtv which was 8 81 million or about 4 92 million the trader takes a 0 10 of fund size position in ge which is about 1 million this is below the 10 trading constraint exceeds the minimum allocation of 250 000 and is also below the 5 million maximum allocation point 2 presents a second opportunity to acquire ge where there was another adtv crossover the trader takes another 1 million position in ge to reduce the average acquisition price of the current ge position as well as to take advantage of the above average liquidity in the stock the closing price of ge at this time was 51 81 over the next six months the price of ge rallies ge stock reaches a price of about 84 71 which is 57 44 higher than the average closing prices at points 1 and 2 the stock trader has more than 50 in unrealized gains from the initial positions at point 3 the trader decides to exit the ge trade the trade execution was based on the volume crossover on the adtv as well as the fact that the trading amount of approximately 3 2 million was within the trading limits of the fund this is because at point 3 28 59 million shares were traded at an approximate value of 2 62 billion risk was also managed by using the trading limit along with the adtv crossover allowing the stock trader to easily exit the position this example was for illustrative purposes only and is not a recommendation to buy or sell ge stock also the criteria for trading limits as well as adtv are purely for illustration the difference between average daily trading volume adtv and open interestvolume is sometimes confused with open interest average daily trading volume is the average of how many shares stock market or contracts futures and options market change hands in a day open interest is a futures and options term that describes how many contracts are open that haven t yet been closed 6volume is the raw amount of how many contracts change hands open interest measures how many transactions were used to open or close positions and thus tracks the number of contracts which remain open the two measurements are quite different limitations to using average daily trading volume adtv average daily trading volume is a commonly used metric and is useful for determining if a stock meets an investor s or trader s trade parameters adtv is an average though on any given day an asset can deviate from the average producing much higher or lower volume the average can also shift over time rising falling or oscillating therefore monitor volume and average volume regularly to make sure that the asset still falls within the volume parameters you desire for your trading significant changes in volume may signal that something has changed within the asset and these changes may be either unfavorable or favorable volume won t tell you which it is but will let know that some further research or action may be required | |
what type of indicator is adtv | adtv is considered a market activity indicator it provides information about the volume of trading activity in a security over a specific period typically on a daily basis adtv is often used alongside technical indicators to gain a more comprehensive understanding of market dynamics | |
what are the similarities between adtv and open interest | adtv and open interest are similar in some ways both are used to measure trading activity can be used to assess liquidity and can be employed to identify trends also adtv and open interest can be used to identify trends as well as support and resistance levels | |
what are the benefits of using adtv | using adtv in trading offers several benefits including assessing security liquidity evaluating the overall market s activity analyzing volatility trade execution optimization and managing risk | |
are there any other indicators that can be used instead of adtv | there are several other indicators and metrics that traders use alongside or instead of adtv some alternatives are on balance volume obv volume weighted average price vwap money flow index mfi relative volume volume price trend vpt advance decline line a d line and tick volume the bottom lineaverage daily trading volume adtv is a metric used in trading to assess the liquidity and activity level of a security such as a stock bond or commodity it represents the average number of shares or contracts traded over a specific period typically measured on a daily basis adtv is calculated by dividing the total trading volume of the security over a specific period by the number of trading days in that period traders and investors alike use adtv in various ways they use adtv to assess liquidity evaluate market activity analyze volatility optimize trade execution and manage risk to use adtv effectively individuals and entities should consider its limitations adtv is historical and may not reflect current market conditions it may not capture intraday volume variations or account for price movements it s essential to combine adtv with other indicators and information to make well informed trading decisions | |
what is the average directional index adx | the average directional index adx is a technical analysis indicator used by some traders to determine the strength of a trend the trend can be either up or down and this is shown by two accompanying indicators the negative directional indicator di and the positive directional indicator di therefore the adx commonly includes three separate lines these are used to help assess whether a trade should be taken long or short or if a trade should be taken at all 1average directional index adx formulathe adx requires a sequence of calculations due to the multiple lines in the indicator di smoothed dm atr 100 di smoothed dm atr 100 dx di di di di 100 adx prior adx 13 current adx 14 where dm directional movement current high ph ph previous high dm previous low current low smoothed dm t 1 14 dm t 1 14 dm 14 cdm cdm current dm atr average true range begin aligned text di left frac text smoothed dm text atr right times 100 text di left frac text smoothed dm text atr right times 100 text dx left frac mid text di text di mid mid text di text di mid right times 100 text adx frac text prior adx times 13 text current adx 14 textbf where text dm directional movement text current high text ph text ph text previous high text dm text previous low text current low text smoothed dm textstyle sum t 1 14 text dm left frac sum t 1 14 text dm 14 right text cdm text cdm text current dm text atr text average true range end aligned di atr smoothed dm 100 di atr smoothed dm 100dx di di di di 100adx 14 prior adx 13 current adx where dm directional movement current high phph previous high dm previous low current lowsmoothed dm t 114 dm 14 t 114 dm cdmcdm current dmatr average true range | |
what does the adx tell you | the adx negative directional indicator di and positive directional indicator di are momentum indicators the adx helps investors determine trend strength while di and di help determine trend direction the adx identifies a strong trend when the adx is over 25 and a weak trend when the adx is below 20 crossovers of the di and di lines can be used to generate trade signals for example if the di line crosses above the di line and the adx is above 20 or ideally above 25 then that is a potential signal to buy on the other hand if the di crosses above the di and the adx is above 20 or 25 then that is an opportunity to enter a potential short trade crosses can also be used to exit current trades for example if long exit when the di crosses above the di meanwhile when the adx is below 20 the indicator is signaling that the price is trendless and that it might not be an ideal time to enter a trade image by sabrina jiang investopedia 2021the average directional index vs the aroon indicatorthe adx indicator is composed of a total of three lines while the aroon indicator is composed of two the two indicators are similar in that they both have lines representing positive and negative movement which helps to identify trend direction the aroon reading level also helps determine trend strength as the adx does the calculations are different though so crossovers on each of the indicators will occur at different times limitations of using the adxcrossovers can occur frequently sometimes too frequently resulting in confusion and potentially lost money on trades that quickly go the other way these are called false signals and are more common when adx values are below 25 that said sometimes the adx reaches above 25 but is only there temporarily and then reverses along with the price like any indicator the adx should be combined with price analysis and potentially other indicators to help filter signals and control risk | |
what is a good average directional index | an adx above 25 is considered strong when the adx is below 20 the trend is weak or the price is trendless | |
is adx a good indicator | yes but it provides better strategy signals when combined with price investors should first use adx to determine whether prices are trending or non trending and then choose the appropriate trading strategy for the condition | |
what is the best indicator to use with adx | the adx works best when combined with other technical indicators like the relative strength index rsi while the adx measures the intensity of the trend the rsi can help with entries and exits by giving a time based component to the trend 2the bottom linethe average directional movement index adx is used by technical traders to determine trend strength as well as trend direction using the adx traders can determine if a market is trading or ranging and then apply the adequate technical trading strategy this can be a profitable strategy that involves minimal risk which makes it a popular strategy among traders there are other technical analysis indicators similar to the adx like the parabolic sar moving averages and envelopes | |
what is average life | the average life is the length of time the principal of a debt issue is expected to be outstanding average life does not take into account interest payments but only principal payments made on the loan or security in loans mortgages and bonds the average life is the average period of time before the debt is repaid through amortization or sinking fund payments investors and analysts use the average life calculation to measure the risk associated with amortizing bonds loans and mortgage backed securities the calculation gives investors an idea of how quickly they can expect returns and provides a useful metric for comparing investment options in general most investors will choose to receive their financial returns earlier and will therefore choose the investment with the shorter average life understanding average lifealso called the weighted average maturity and weighted average life the average life is calculated to determine how long it will take to pay the outstanding principal of a debt issue such as a treasury bill t bill or bond while some bonds repay the principal in a lump sum at maturity others repay the principal in installments over the term of the bond in cases where the bond s principal is amortized the average life allows investors to determine how quickly the principal will be repaid the payments received are based on the repayment schedule of the loans backing the particular security such as with mortgage backed securities mbs and asset backed securities abs as borrowers make payments on the associated debt obligations investors are issued payments reflecting a portion of these cumulative interest and principal payments calculating the average life on a bondto calculate the average life multiply the date of each payment expressed as a fraction of years or months by the percentage of total principal that has been paid by that date add the results and divide by the total issue size for example assume an annual paying four year bond has a face value of 200 and principal payments of 80 during the first year 60 for the second year 40 during the third year and 20 for the fourth and final year the average life for this bond would be calculated with the following formula 80 x 1 60 x 2 40 x 3 20 x 4 400then divide the weighted total by the bond face value to get the average life in this example the average life equals 2 years 400 divided by 200 2 this bond would have an average life of two years against its maturity of four years mortgage backed and asset backed securitiesin the case of an mbs or abs the average life represents the average length of time required for the associated borrowers to repay the loan debt an investment in an mbs or abs involves purchasing a small portion of the associated debt that is packaged within the security the risk associated with an mbs or abs centers on whether the borrower associated with the loan will default if the borrower fails to make a payment the investors associated with the security will experience losses in the financial crisis of 2008 a large number of defaults on home loans particularly in the subprime market led to significant losses in the mbs arena 1special considerationswhile certainly not as dire as default risk another risk bond investors face is prepayment risk this occurs when the bond issuer or the borrower in the case of mortgage backed securities pays back the principal earlier than scheduled these prepayments will reduce the average life of the investment because the principal is paid back early the investor will not receive future interest payments on that part of the principal this interest reduction can represent an unexpected challenge for investors of fixed income securities dependent on a reliable stream of income for this reason some bonds with payment risk include prepayment penalties | |
what is average outstanding balance | an average outstanding balance is the unpaid interest bearing balance of a loan or loan portfolio averaged over a period of time usually one month the average outstanding balance can refer to any term installment revolving or credit card debt on which interest is charged it may also be an average measure of a borrower s total outstanding balances over a period of time average outstanding balance can be contrasted with average collected balance which is that part of the loan that has been repaid over the same period understanding average outstanding balanceaverage outstanding balances can be important for several reasons lenders often have a portfolio of many loans which need to be assessed in aggregate in terms of risk and profitability banks use the average outstanding balance to determine the amount of interest they pay each month to their account holders or charge to their borrowers if a bank has a large outstanding balance on its lending portfolio it could indicate that they are having trouble collecting on their loans and may be a signal for future financial stress many credit card companies also use an average daily outstanding balance method for calculating interest applied to a revolving credit loan particularly credit cards credit card users accumulate outstanding balances as they make purchases throughout the month an average daily balance method allows a credit card company to charge slightly higher interest that takes into consideration a cardholder s balances throughout the past days in a period and not just at the closing date for borrowers credit rating agencies will review a consumer s outstanding balances on their credit cards as part of determining a fico credit score borrowers should show restraint by keeping their credit card balances well below their limits maxing out credit cards paying late and applying for new credit increases one s outstanding balances and can lower fico scores interest on average outstanding balanceswith average daily outstanding balance calculations the creditor may take an average of the balances over the past 30 days and assess interest on a daily basis commonly average daily balance interest is a product of the average daily balances over a statement cycle with interest assessed on a cumulative daily basis at the end of the period regardless the daily periodic rate is the annual percentage rate apr divided by 365 if interest is assessed cumulatively at the end of a cycle it would only be assessed based on the number of days in that cycle other average methodologies also exist for example a simple average may be used between a beginning and ending date by dividing the beginning balance plus the ending balance by two and then assessing interest based on a monthly rate credit cards will provide their interest methodology in the cardholder agreement some companies may provide details on interest calculations and average balances in their monthly statements because the outstanding balance is an average the period of time over which the average is computed will affect the balance amount consumer creditoutstanding balances are reported by credit providers to credit reporting agencies each month credit issuers typically report a borrower s total outstanding balance at the time the report is provided some credit issuers may report outstanding balances at the time a statement is issued while others choose to report data on a specific day each month balances are reported on all types of revolving and non revolving debt with outstanding balances credit issuers also report delinquent payments beginning at 60 days past due timeliness of payments and outstanding balances are the top factors that affect a borrower s credit score experts say borrowers should strive to keep their total outstanding balances below 30 borrowers using more than 30 of total available debt outstanding can easily improve their credit score from month to month by making larger payments that reduce their total outstanding balance | |
when the total outstanding balance decreases a borrower s credit score improves timeliness however is not as easy to improve since delinquent payments are a factor that can remain on a credit report for seven years | average balances are not always a part of credit scoring methodologies however if a borrower s balances are drastically changing over a short period of time due to debt repayment or debt accumulation there will typically be a lag in total outstanding balance reporting to the credit bureau s which can make tracking and assessing real time outstanding balances difficult calculating average outstanding balancelenders typically calculate interest on revolving credit such as credit cardsor lines of credit using an average of daily outstanding balances the bank adds all the daily outstanding balances in the period usually a month and divides this sum by the number of days in the period the result is the average outstanding balance for the period for loans that are paid monthly such as mortgages a lender may instead take the arithmetic mean of the starting and ending balance for a statement cycle for instance say a home borrower has a mortgage balance of 100 000 at the start of the month and makes a payment on the 30th of the same month reducing the outstanding principal amount to 99 000 the average outstanding balance for the loan over that period would be 100 000 99 000 2 99 500 frequently asked questionsan outstanding balance is the total amount still owed on a loan this is the amount of a loan s principal amount i e the dollar amount initially loaned that is still due and does not take into account the interest or any fees that are owed on the loan borrowers can find this information on their regular bank or loan statements they can also usually be pulled up from a lender s website for viewing at any time outstanding balance refers to the amount still owed on a loan from the perspective of a borrower or lender remaining balance instead refers to how much money remains in an account after spending or a withdrawal from the perspective of a saver or savings bank some lenders charge a fixed percentage such a 2 5 others will charge a flat fee plus a fixed percentage such as 20 1 75 of the outstanding balance as the minimum payment due penalty fees like late fees as well as past due amounts will typically be added to the calculation this would increase your minimum payment significantly | |
what is average propensity to consume | average propensity to consume apc measures the percentage of income that is spent rather than saved this may be calculated by a single individual who wants to know where the money is going or by an economist who wants to track the spending and saving habits of an entire nation in either case the propensity to consume can be determined by dividing average household consumption or spending by average household income or earnings understanding average propensity to consumefrom the broader economic view a high average propensity to consume is generally good for the economy when the average propensity to consume is high consumers are saving less and spending more on goods or services this increased demand drives economic growth business expansion and broad employment low income households are often seen as having a higher average propensity to consume than high income households low income households may be forced to spend their entire income on necessities with minimal disposable income remaining to save alternatively high income households with higher cash flow after their necessities are met typically have a relatively lower average propensity to consume economists often gauge economy forecasts on actions by the middle income households the spending and savings patterns of this demographic often indicate a degree of confidence or pessimism about their own personal financial situations and the economy as a whole | |
when annotated as a decimal average propensity to consume ranges from zero to one at zero or 0 all income is being saved at one or 100 all income is being consumed | propensity to consume vs propensity to savethe sum of the average propensity to consume and the average propensity to save is always equivalent to one a household or a nation must either spend or save all of its income the inverse of the average propensity to consume is the average propensity to save aps that figure is simply total savings divided by income the result is known as the savings ratio notably the savings ratio is normally based on its percentage of disposable income or after tax income an individual determining personal propensities to consume and save should probably use the disposable income figure as well for a more realistic measure example of average propensity to consumeassume a nation s economy has a gross domestic product gdp equivalent to its disposable income of 500 billion for the previous year the total savings of the economy was 300 billion and the rest was spent on goods and services the nation s aps is calculated to be 0 60 or 300 billion 500 billion this indicates the economy allocated 60 of its disposable income to savings the average propensity to consume is calculated to be 0 40 or 1 0 60 therefore the nation spent 40 of its gdp on goods and services aps can include saving for retirement a home purchase and other long term investments as such it can be a proxy for national financial health according to the bureau of economic analysis the average household in the united states saved 3 9 of their disposable income in may 2024 special considerationsthe marginal propensity to consume mpc is a related concept it measures the change in the average propensity to consume assume that the nation in the previous example increased its gdp to 700 billion and its consumption of goods and services rose to 375 billion the economy s average propensity to consume increased to 53 57 the nation s consumption increased from 200 billion to 375 billion alternatively the nation s gdp increased from 500 billion to 700 billion the nation s marginal propensity to consume is 87 5 375 billion 200 billion 700 billion 500 billion the marginal propensity measures the directional trend of how an entity is utilizing its money in this case 87 5 of new growth was further consumed | |
what is average propensity to consume | average propensity to consume is an economic indicator of how much income is spent a specific entity is selected such as an individual an income class or an entire country average propensity to save measures how much money is saved compared to spent average propensity to consume is used by economists to forecast future economic growth when average propensity to consume is higher more people are spending more money this drives economic growth through product demand and job creation | |
how is average propensity to consume measured | average propensity to consume may be reported as a percent 60 of income is consumed or as a decimal average consumption is 0 6 average propensity to consume is also generally most useful when compared against itself over time or across entities for example the average propensity to consume for a united states citizen could be tracked over time or compared against canadian citizens | |
how do i calculate average propensity to consume | average propensity to consume is calculated by dividing an entity s consumption by the entity s total income it is a ratio between what is spent and what is earned | |
what does average propensity to consume mean | average propensity to consume is an economic measurement of how much income a specific entity spends that entity may be an individual or a country if an entity has a higher average propensity to consume it means a higher proportion of their income is used to buy things as opposed to save for the future | |
what is average return | the average return is the simple mathematical average of a series of returns generated over a specified period of time an average return is calculated the same way that a simple average is calculated for any set of numbers the numbers are added together into a single sum then the sum is divided by the count of the numbers in the set understanding average returnthere are several return measures and ways to calculate them for the arithmetic average return one takes the sum of the returns and divides it by the number of return figures average return sum of returnsnumber of returns text average return dfrac text sum of returns text number of returns average return number of returnssum of returns the average return tells an investor or analyst what the returns for a stock or security have been in the past or what the returns of a portfolio of companies are the average return is not the same as an annualized return as it ignores compounding average return exampleone example of average return is the simple arithmetic mean for instance suppose an investment returns the following annually over a period of five full years 10 15 10 0 and 5 to calculate the average return for the investment over this five year period the five annual returns are added together and then divided by 5 this produces an annual average return of 8 now let s look at a real life example shares of walmart returned 9 1 in 2014 lost 28 6 in 2015 gained 12 8 in 2016 gained 42 9 in 2017 and lost 5 7 in 2018 the average return of walmart over those five years is 6 1 or 30 5 divided by 5 years calculating returns from growththe simple growth rate is a function of the beginning and ending values or balances it is calculated by subtracting the ending value from the beginning value and then dividing by the beginning value the formula is as follows growth rate bv evbvwhere bv beginning valueev ending value begin aligned text growth rate dfrac text bv text ev text bv textbf where text bv text beginning value text ev text ending value end aligned growth rate bvbv ev where bv beginning valueev ending value for example if you invest 10 000 in a company and the stock price increases from 50 to 100 then the return can be calculated by taking the difference between 100 and 50 and dividing by 50 the answer is 100 which means you now have 20 000 the simple average of returns is an easy calculation but it is not very accurate for more accurate calculations of returns analysts and investors also frequently use the geometric mean or the money weighted rate of return average return alternatives | |
when looking at average historical returns the geometric average is a more precise calculation the geometric mean is always lower than the average return one benefit of using the geometric mean is that the actual amounts invested need not be known the calculation focuses entirely on the return figures themselves and presents an apples to apples comparison when looking at two or more investments performances over more various time periods | the geometric average return is sometimes called the time weighted rate of return twr because it eliminates the distorting effects on growth rates created by various inflows and outflows of money into an account over time alternatively the money weighted rate of return mwrr incorporates the size and timing of cash flows making it an effective measure for returns on a portfolio that has received deposits dividend reinvestments and or interest payments or has had withdrawals the mwrr is equivalent to the internal rate of return irr where the net present value equals zero | |
what is average selling price asp | the term average selling price asp refers to the price at which a certain class of good or service is typically sold the average selling price is affected by the type of product and the product life cycle the asp is the average selling price of the product across multiple distribution channels across a product category within a company or even across the market as a whole understanding average selling price asp the average selling price is the price for a product or service in various markets and is normally used in the retail and technology industries the established asp for a particular good can act as a benchmark price helping other manufacturers producers or retailers set the prices for their own products marketers who try to set a price for a product must also consider where they want their product to be positioned if they want their product image to be part of a high quality choice they have to set a higher asp products like computers cameras televisions and jewelry tend to have higher average selling prices while products like books and dvds will have a low average selling price when a product is the latter part of its product life cycle the market is most likely saturated with competitors therefore driving down the asp in order to calculate the asp divide the total revenue earned from the product by the total number of units sold this average selling price is usually reported during quarterly financial results and can be considered as accurate as possible given regulation on fraudulent reporting special considerationsthe smartphone market is a big industry which uses average selling prices in the smartphone market the average selling price indicates how much money a handset manufacturer is receiving on average for the phones that it sells in the smartphone market advertised selling prices can differ drastically from average selling prices for product driven companies like apple calculations for average selling price provide pivotal information about its financial performance and by extension the performance of its stock price in fact there s a clear relationship between apple s iphone asp and its stock price movements the iphone s asp matters even more when considering how each device drives overall profitability for apple apple consolidates its operations under a single profit and loss statement p l meaning investors can t tell how costs such as marketing and research and development r d are spread among the company s various products since the iphone has the highest gross margin in apple s device family the device generates the lion s share of apple s profits that makes the iphone crucial in determining apple s overall financial performance each quarter examples of average selling pricethe term average selling price has a place in the housing market when the average selling price of a home within a particular region rises this may be a signal of a booming market conversely when the average price drops so does the perception of the market in that particular area some industries use asp in a slightly different way the hospitality industry especially hotels and other lodging companies commonly refers to it as the average room or average daily rate these average rates tend to be higher during peak seasons while rates normally drop when travel seems to be low or during off seasons | |
what is the average true range atr | the average true range atr is a technical analysis indicator introduced by market technician j welles wilder jr in his book new concepts in technical trading systems that measures market volatility by decomposing the entire range of an asset price for that period the true range indicator is taken as the greatest of the following current high less the current low the absolute value of the current high less the previous close and the absolute value of the current low less the previous close the atr is then a moving average generally using 14 days of the true ranges 1traders can use shorter periods than 14 days to generate more trading signals while longer periods have a higher probability to generate fewer trading signals the average true range atr formulathe formula to calculate atr for an investment with a previous atr calculation is previous atr n 1 tr n where n number of periods tr true range begin aligned frac text previous atr n 1 text tr n textbf where n text number of periods text tr text true range end aligned nprevious atr n 1 tr where n number of periodstr true range if there is not a previous atr calculated you must use 1 n i n tr i where tr i particular true range such as first day s tr then second then third n number of periods begin aligned big frac 1 n big sum i n text tr i textbf where text tr i text particular true range such as first day s tr text then second then third n text number of periods end aligned n1 i n tri where tri particular true range such as first day s tr then second then thirdn number of periods the capital sigma symbol represents the summation of all of the terms for n periods starting at i or the period specified if there is no number following i it is assumed the starting point is the first period you may see i 1 noting to start summing at the first term you must first use the following formula to calculate the true range 1tr max h l h c p l c p where h today s high l today s low c p yesterday s closing price max highest value of the three terms so that h l today s high minus the low h c p absolute value of today s high minus yesterday s closing price l c p absolute value of today s low minus yesterday s closing price begin aligned text tr text max text h text l text h text c p text l text c p textbf where text h text today s high text l text today s low text c p text yesterday s closing price text max text highest value of the three terms textbf so that text h text l text today s high minus the low text h text c p text absolute value of today s high minus text yesterday s closing price text l text c p text absolute value of today s low minus text yesterday s closing price end aligned tr max h l h cp l cp where h today s highl today s lowcp yesterday s closing pricemax highest value of the three termsso that h l today s high minus the low h cp absolute value of today s high minusyesterday s closing price l cp absolute value of today s low minusyesterday s closing price | |
how to calculate the atr | the first step in calculating atr is to find a series of true range values for a security the price range of an asset for a given trading day is its high minus its low to find an asset s true range value you first determine the three terms from the formula suppose that xyz s stock had a trading high today of 21 95 and a low of 20 22 it closed yesterday at 21 51 using the three terms we use the highest result h l 21 95 20 22 1 73 text h text l 21 95 20 22 1 73 h l 21 95 20 22 1 73 h c p 21 95 21 51 0 44 text h text c p 21 95 21 51 0 44 h cp 21 95 21 51 0 44 l c p 20 22 21 51 1 29 text l text c p 20 22 21 51 1 29 l cp 20 22 21 51 1 29the number you d use would be 1 73 because it is the highest value because you don t have a previous atr you need to use the atr formula 1 n i n tr i begin aligned big frac 1 n big sum i n text tr i end aligned n1 i n tri using 14 days as the number of periods you d calculate the tr for each of the 14 days assume the following prices from the table you d use these prices to calculate the tr for each day you find that the highest values for each day are from the h l column so you d add up all of the results from the h l column and multiply the result by 1 n per the formula 1 73 1 15 1 16 1 12 1 15 1 16 1 09 1 17 1 14 1 15 1 16 1 14 1 16 1 17 16 65 begin aligned 1 73 1 15 1 16 1 12 1 15 1 16 1 09 1 17 1 14 1 15 1 16 1 14 1 16 1 17 16 65 end aligned 1 73 1 15 1 16 1 12 1 15 1 16 1 09 1 17 1 14 1 15 1 16 1 14 1 16 1 17 16 65 1 n 16 65 1 14 16 65 begin aligned frac 1 n 16 65 frac 1 14 16 65 end aligned n1 16 65 141 16 65 0 714 16 65 1 18 begin aligned 0 714 times 16 65 1 18 end aligned 0 714 16 65 1 18 so the average volatility for this asset is 1 18 now that you have the atr for the previous period you can use it to determine the atr for the current period using the following previous atr n 1 tr n begin aligned frac text previous atr n 1 text tr n end aligned nprevious atr n 1 tr this formula is much simpler because you only need to calculate the tr for one day assuming on day 15 the asset has a high of 25 55 a low of 24 37 and closed the previous day at 24 87 its tr works out to 1 18 1 18 14 1 1 18 14 begin aligned frac 1 18 14 1 1 18 14 end aligned 14 1 18 14 1 1 18 1 18 13 1 18 14 begin aligned frac 1 18 13 1 18 14 end aligned 14 1 18 13 1 18 15 34 1 18 14 begin aligned frac 15 34 1 18 14 end aligned 14 15 34 1 18 16 52 14 1 18 begin aligned frac 16 52 14 1 18 end aligned 14 16 52 1 18 the stock closed the day again with an average volatility atr of 1 18 image by sabrina jiang investopedia 2020 | |
what does the atr tell you | wilder originally developed the atr for commodities although the indicator can also be used for stocks and indices 2 simply put a stock experiencing a high level of volatility has a higher atr and a lower atr indicates lower volatility for the period evaluated the atr may be used by market technicians to enter and exit trades and is a useful tool to add to a trading system it was created to allow traders to more accurately measure the daily volatility of an asset by using simple calculations the indicator does not indicate the price direction instead it is used primarily to measure volatility caused by gaps and limit up or down moves the atr is relatively simple to calculate and only needs historical price data the atr is commonly used as an exit method that can be applied no matter how the entry decision is made one popular technique is known as the chandelier exit and was developed by chuck lebeau the chandelier exit places a trailing stop under the highest high the stock has reached since you entered the trade the distance between the highest high and the stop level is defined as some multiple multiplied by the atr 3image by sabrina jiang investopedia 2020the atr can also give a trader an indication of what size trade to use in the derivatives markets it is possible to use the atr approach to position sizing that accounts for an individual trader s willingness to accept risk and the volatility of the underlying market example of how to use the atras a hypothetical example assume the first value of a five day atr is calculated at 1 41 and the sixth day has a true range of 1 09 the sequential atr value could be estimated by multiplying the previous value of the atr by the number of days less one and then adding the true range for the current period to the product next divide the sum by the selected timeframe for example the second value of the atr is estimated to be 1 35 or 1 41 5 1 1 09 5 the formula could then be repeated over the entire period while the atr doesn t tell us in which direction the breakout will occur it can be added to the closing price and the trader can buy whenever the next day s price trades above that value this idea is shown below trading signals occur relatively infrequently but usually indicate significant breakout points the logic behind these signals is that whenever a price closes more than an atr above the most recent close a change in volatility has occurred 2image by sabrina jiang investopedia 2020limitations of the atrthere are two main limitations to using the atr indicator the first is that atr is a subjective measure meaning that it is open to interpretation no single atr value will tell you with any certainty that a trend is about to reverse or not instead atr readings should always be compared against earlier readings to get a feel of a trend s strength or weakness second atr only measures volatility and not the direction of an asset s price 1 this can sometimes result in mixed signals particularly when markets are experiencing pivots or when trends are at turning points for instance a sudden increase in the atr following a large move counter to the prevailing trend may lead some traders to think the atr is confirming the old trend however this may not be the case | |
how do you use atr indicator in trading | average true range is used to evaluate an investment s price volatility it is used in conjunction with other indicators and tools to enter and exit trades or decide whether to purchase an asset | |
how do you read atr values | an average true range value is the average price range of an investment over a period so if the atr for an asset is 1 18 its price has an average range of movement of 1 18 per trading day | |
what is a good average true range | a good atr depends on the asset if it generally has an atr of close to 1 18 it is performing in a way that can be interpreted as normal if the same asset suddenly has an atr of more than 1 18 it might indicate that further investigation is required likewise if it has a much lower atr you should determine why it is happening before taking action the bottom linethe average true range is an indicator of the price volatility of an asset it is best used to determine how much an investment s price has been moving in the period being evaluated rather than an indication of a trend calculating an investment s atr is relatively straightforward only requiring you to use price data for the period you re investigating | |
what is an axe | an axe or axe to grind is the interest that a trader shows in buying or selling a security that is typically already on the books if a trader holds a long position but has short term concerns that trader s axe toward short term put options may be significant likewise if a trader has risk exposure to an increase in interest rates they may have an axe to hedge against that risk many times a trader with an axe will keep that information private that is because if other market participants become aware of one s motivations they can take advantage of that information by offering unfavorable prices or withholding certain trades in order to exploit the situation understanding an axethe term axe is derived from the phrase axe to grind which means to possess an ulterior motive or selfish aim the phrase has historically meant to have a grievance with someone especially where one feels the need to seek retribution the phrase probably originates from the act of sharpening an axe with a grinding wheel with the intent in this definition to get revenge on someone by maiming or killing them traders often use the term axe to represent someone s particular interest in buying or selling a security that is already in their inventory or hedging against it the term was historically used to reference bond holdings but traders have expanded the use to include all securities in conversation the term is often used to speculate about a trader s plan with regard to a security that they hold axe should not be confused with ax which is a market maker central to the price action of a specific security | |
how an axe is used in practice | the term axe can be used in many different ways which makes the context of the conversation important to consider suppose that a trader has a large position in a given security if that trader shops around for quotes with the intent of selling the stake the trader who provides the quote may be at a disadvantage if they are unaware that the first trader has an axe with regard to the security the second trader may ask do they have an axe on this security which means do they have plans to sell this security traders may also use the term to represent securities related to the securities that they hold for instance a trader may hold a long position and have an axe toward put options if nervous about the stock s short term prospects having an axe is often kept secret because knowledge of that information can be used by other market participants to exploit the situation for their own gain and at the expense of the axe holder that said traders with good rapport may ask each other outright if they have a particular axe in the hopes that the other trader s axe s will be opposite from their own this way they can affect a trade or trades with each other in a mutually beneficial manner | |
what is a baby bond | a baby bond is a fixed income security that is issued in small dollar denominations with a par value of less than 1 000 the small denominations enhance the attraction of baby bonds to average retail investors understanding baby bondsbaby bonds are issued mainly by municipalities counties and states to fund expensive infrastructure projects and capital expenditures these tax exempt municipal bonds are generally structured as zero coupon bonds with a maturity of between eight and 15 years the muni bonds are usually rated a or better in the bond market baby bonds are also issued by businesses as corporate bonds corporate issuers of these debt securities include utility companies investment banks telecom companies and business development companies bdcs involved in funding small and mid sized businesses the price of the corporate bonds is determined by the issuer s financial health credit rating and available market data for the company a company that cannot or does not want to issue a large debt offering may issue baby bonds as a way to generate demand and liquidity for the bonds another reason that a company may issue baby bonds is to attract small or retail investors who may not have the funds to purchase the standard 1 000 par value bond examplefor example an entity that wanted to borrow money by issuing 4 million worth of bonds might not garner much interest from institutional investors for such a relatively small issue in addition with a 1 000 par value the issuer will be able to sell only 4 000 bond certificates on the markets however if the company issues baby bonds instead for a 400 face value retail investors will be able to affordably access these securities and the company will have the capacity to issue 10 000 bonds in the capital markets additional considerationsbaby bonds are typically categorized as unsecured debt meaning the issuer or borrower does not pledge any collateral to guarantee interest payments and principal repayments in the event of default therefore if the issuer defaults on its payment obligations baby bondholders would get paid only after the claims of secured debt holders were met however following the standard structure of debt instruments baby bonds are senior to a company s preferred shares and common stock one feature of baby bonds is that they are callable a callable bond is one that can be redeemed early that is before maturity by the issuer when bonds are called the interest payments also stop being paid by the issuer to compensate baby bondholders for the risk of calling a bond prior to its maturity date these bonds have relatively high coupon rates ranging from around 5 percent to 8 percent other baby bondsbaby bonds may also refer to a series of small denomination savings bonds with face value ranging from 75 to 1 000 issued by the u s government from 1935 to 1941 these tax exempt bonds were sold at 75 of face value and had a maturity of 10 years in the uk baby bonds refer to a type of bond launched in the late 1990s with the objective of encouraging savings for children by their parents parents had to make small monthly contributions for at least 10 years and in return the child received a guaranteed minimum amount tax free upon turning 18 | |
what is a baby boomer | baby boomer is a term used to describe those who were born from 1946 to 1964 they formed the largest generational group in u s history until the millennial generation slightly surpassed them the baby boomer generation makes up a substantial portion of the world s population especially in developed nations they ve had and continue to have a significant impact on the economy nez riaz investopediababy boomer facts and figuresthe generation of baby boomers emerged after the end of world war ii when birth rates around the world spiked the explosion of infants became known as the baby boom when 76 million babies were born in the united states alone 1several million baby boomers have died in the decades since but immigration to the u s has helped replenish the supply the u s census bureau estimates that the baby boom population has reached about 73 million based on 2020 census data the latest info available 2most historians say that the baby boomer phenomenon likely involved a combination of factors people wanting to start the families that they d put off during world war ii and the great depression and a sense of confidence that the coming era would be peaceful and prosperous the late 1940s and 1950s did indeed see a general increase in wages thriving businesses and an increase in the variety and quantity of products for consumers accompanying this new economic prosperity was a migration of young families from the cities to the suburbs the g i bill allowed many returning veterans although not blacks to buy affordable homes in tracts around the edges of cities this led to a suburban ethos of the ideal family consisting of the husband as the provider the wife as a stay at home housekeeper and their children 34businesses also targeted their children with their advertising and marketing efforts as suburban families began to use forms of credit to purchase consumer goods such as cars home appliances and television sets many boomers became dissatisfied with this ethos and the consumer culture associated with it as they approached adolescence this fueled the youth counterculture movement of the 1960s boomers are the longest living generation in history so far and they re at the forefront of what has been called a longevity economy baby boomers spent about 8 7 trillion in 2020 on goods and services a figure that s expected to increase to 15 trillion by 2030 according to a 2021 report from the brookings institution 5baby boomers held 51 8 of household wealth at the end of 2023 evidence that they continue to hold substantial economic and political power even as they get older they were distantly followed by genx at 25 7 6 | |
what baby boomer retirement is looking like | every baby boomer will be 65 or older by 2030 their retirement experience will be very different from that of their parents the greatest generation in many ways 2increasing life expectancy has made it likely that baby boomers will spend more time in retirement than their parents did the average life expectancy was 77 5 years as of 2022 in the u s 1 1 years more than in 2021 7greater longevity coupled with good health and an accommodating job market also opens up the possibility for baby boomers to remain in the workforce longer doing so won t just provide them with more current income and more time to plump up their retirement accounts it will also reduce the time that they ll have to depend on their savings to support them baby boomers witnessed the decline of traditional defined benefit pensions during their working years where the employer promised workers a certain amount of regular income upon retirement the employer was responsible for funding the pension plan as well as choosing and managing its investments many of the baby boomers parents had retired comfortably on such pensions defined contribution plans such as 401 k plans came along in their place they re largely funded by the employees themselves from their paychecks often with some form of matching contribution from the employer employees are typically given a choice of investments such as an assortment of mutual funds making it their responsibility to contribute enough money and invest it wisely it was a boomer s tough luck if they failed to do so in 1975 27 2 million private sector workers participated in defined benefit pension plans that number dropped to 12 6 million by 2019 the number of defined contribution plan participants rose from 11 2 million to 85 5 million over that same period 8among baby boomer households with retirement savings the transamerica center for retirement studies estimates their median value at 289 000 the center also reports that 41 of boomers expect their primary source of retirement income will be social security benefits 9the money to pay social security retirement benefits comes from two sources a social security trust fund known as the old age and survivors insurance or oasi trust fund and out of the income that s paid into the system by current workers social security s trustees estimate that the trust fund will run out of money in 2033 the income from current workers will be able to cover only 77 of current retirement benefits at that time 10part of the problem is the size of the baby boom retiree cohort versus the number of current workers there were 8 6 active workers for every retiree in 1955 11 that number dropped to 2 7 workers per retiree in 2023 according to social security administration estimates and it may be down to 2 3 by 2035 12who named the baby boom the term baby boom goes back to the years immediately following world war i when england experienced one it began to appear in u s newspapers toward the end of world war ii and may have been given greater currency when widely read financial columnist sylvia porter used it in a 1951 article on the boom s economic impact 13the term baby boomer is more recent dating back to at least the 1970s it got a boost in 1980 when author landon y jones published his bestselling book great expectations america the baby boom generation and it has remained with us ever since | |
what are echo boomers | echo boomers are the children of baby boomers generally born in the years from 1976 to 2001 a period of rising birth rates 14 the earliest echo boomers can be considered members of gen x later ones are either millennials or part of gen z | |
what is generation jones | generation jones or genjones refers to baby boomers born in the u s in the years 1954 to 1965 the term was coined by writer jonathan pontell who maintains that these later boomers are different enough from their early boomer counterparts to constitute their own generation 15the bottom linethe generation of baby boomers remains a powerful force in the u s economy and will most likely continue to be one for years to come boomers are the longest living generation in history so far and increasing life expectancy makes it likely that they ll spend more time in retirement than their parents did raising concerns about the ongoing viability of the social security system | |
what is the back end ratio | the back end ratio also known as the debt to income ratio is a ratio that indicates what portion of a person s monthly income goes toward paying debts total monthly debt includes expenses such as mortgage payments principal interest taxes and insurance credit card payments child support and other loan payments back end ratio total monthly debt expense gross monthly income x 100lenders use this ratio in conjunction with the front end ratio to approve mortgages the lower your back end ratio the lower risk you are | |
what is back office | the back office is the portion of a company made up of administration and support personnel who are not client facing back office functions include settlements clearances record maintenance regulatory compliance accounting and it services 12 for example a financial services firm is segmented into three parts the front office e g sales marketing and customer support the middle office risk management and the back office administrative and support services | |
how the back office works | the back office can be thought of as the part of a company responsible for providing all business functions related to its operations despite their seemingly invisible presence back office personnel provide essential functions to the business the back office is an essential part of any firm and associated job titles are often classified under operations their roles enable and equip front office personnel to perform their client facing duties the back office is sometimes used to describe all jobs that do not directly generate revenue the term back office originated when early companies designed their offices so that the front portion contained the associates who interact with customers and the back portion of the office contained associates who have no interaction with customers such as accounting clerks example of back officetoday most back office positions are located away from the company headquarters many are located in cities where commercial leases are inexpensive labor costs are lower and an adequate labor pool is available alternatively many companies have chosen to outsource and or offshore back office roles to further reduce costs technology has afforded many companies the opportunity to allow remote work arrangements in which associates work from home benefits include rent savings and increased productivity additionally remotely employing back office staff allows companies to access talent in various areas and attract a diverse pool of applicants some firms offer incentives to employees and applicants who accept remote positions for example a financial services firm that requires high level accounting could offer a 500 per month housing subsidy to experienced cpas to work from home if it costs 1 000 per month to secure office space per individual a housing subsidy of 500 per month would result in an overall savings of 6 000 per year the cost savings can be significant when employing many remote professionals though this saves money for the company the employee may also have to accept a lower salary if they are moving from a front office position in a central location to a more remote location or even a work at home arrangement back office interaction with front officealthough back office staff members do not interact with customers they tend to actively interact with front office staff for example a manufacturing equipment salesperson may enlist the help of back office staff to provide accurate information on inventory and pricing structures real estate marketing professionals frequently interact with sales agents to create attractive and relevant marketing materials and it professionals regularly interact with all divisions within the company to ensure proper functioning systems many business school students from non target colleges and universities see back office work as a way to gain experience within a firm and potentially network up into the front office roles though it varies from one firm to another the work in the back office roles is significantly different from the front office and with the exception of corporate credit risk roles may not provide a front office hopeful with the needed experience to make such a transition | |
how is the front office different from the back office | the front office is responsible for attracting new clients and servicing existing clients in short they re the client facing team the back office on the other hand exists to service the transactions conducted by the front office and has no interaction with the firm s clients however it could be said that the back office s client is the front office | |
what are the back office s main responsibilities | in short the back office exists to finalize the transactions conducted by the front office this includes confirming transactions and settlement instructions with the back office of the counterparty the back office is also responsible for trade clearances record maintenance accounting and it services | |
where are back offices physically located | back offices used to be located literally behind the front office or trading desk these days many financial corporations have moved their back office locations to lower cost sites such as florida or north carolina where rents and salaries are generally lower than big cities like new york or chicago the bottom linethe back office plays a crucial role in supporting the front office think sales trading desk by processing the trades made by customers of the bank or for the banks own proprietary trading operations some of the functions of the back office are confirming trades and settlement instructions clearances record maintenance regulatory compliance accounting and it services it goes without saying then that the front office activities could not be processed without the back office and the back office would not exist were it not for the front offices sales and trading activities making teamwork essential while frequently unseen the back office performs critical duties stemming from front desk activities by the same token back office operations are a cost center leading many financial firms to locate their back office or operations teams in lower cost locations like florida or north carolina where real estate and labor costs are lower than the city where the head office may be located e g new york or chicago | |
what is a back stop | in corporate finance and investment banking a back stop or backstop is to provide last resort support or to make a bid in a securities offering for the unsubscribed portion of shares | |
how a back stop works | a back stop functions as a form of insurance while not an actual insurance plan a company can guarantee that a certain amount of its offering will be purchased by particular organizations usually investment banking firms if the open market does not produce enough investors and a portion of the offering goes unsold if the organization providing the back stop is an investment banking firm sub underwriters representing the investment firm will enter into an agreement with the company this agreement is referred to as a firm commitment underwriting deal or contract and it provides overall support for the offering by committing to purchase a specific number of unsold shares by entering into a firm commitment underwriting agreement the associated organization has claimed full responsibility for the quantity of shares specified if they initially go unsold and promises to provide the associated capital in exchange for the available shares this gives assurance to the issuer that the minimum capital can be raised regardless of the open market activity additionally all risk associated with the specified shares is effectively transferred to the underwritten organization if all of the offering is purchased through regular investment vehicles the contract obligating the organization to purchase any unsold shares is rendered void as the conditions surrounding the promise to purchase no longer exist the contracts between an issuer and the underwriting organization can take various forms for example the underwriting organization can provide the issuer with a revolving credit loan to boost credit ratings for the issuer they may also issue letters of credit as guarantees to the entity raising capital through offerings special considerationsif the underwriting organization takes possession of any shares as specified in the agreement the shares belong to the organization to manage as it sees fit the shares are treated the same way as any other investment purchased through normal market activity the issuing company can impose no restrictions on how the shares are traded the underwriting organization may subsequently hold or sell the associated securities per the regulations that govern the activity overall example of a back stopin a rights offering you may see a statement to this effect abc company will provide a 100 percent back stop of up to 100 million for any unsubscribed portion of the xyz company rights offering if xyz is trying to raise 200 million but only raises 100 million through investors then abc company purchases the remainder | |
what is a back stop in a bond issue | similar to the back stop in an equity placement a back stop for a bond issue is a type of guarantee whereby the underwriting bank or syndicate will fix a price at which to purchase any unsold or unsubscribed bonds who are backstop purchasers if the underwriting bank or investment banking syndicate cannot or do not want to back stop a new issue third party backstop purchasers may be called upon to step in and buy any unsubscribed portion of a securities issue these purchasers may provide a bid substantially below the issue price and or may demand fees as compensation they would then often try to sell off the holdings over time at a profit | |
what are volcker rule backstop provisions | the volcker rule is a set of financial regulations that separates the commercial and investment banking activities of a firm its purpose is to prevent conflicts of interest and unfair practices to the detriment of a bank s customers one provision of the rule is to prevent the backstopping of a securities issue by an underwriting bank if it will create a conflict of interest moreover a back stop would be prohibited if it would result directly or indirectly in a material exposure by the banking entity to a high risk asset or a high risk trading strategy or pose a threat to the safety and soundness of the banking entity or to the financial stability of the united states 1 | |
what are back to back letters of credit | back to back letters of credit are two letters of credit locs used together to finance a transaction these are used primarily in international transactions the first letter of credit serves as collateral for the second letter of credit back to back letters of credit are usually used in a transaction involving an intermediary between the buyer and seller such as a broker | |
how back to back letters of credit work | back to back letters of credit are made up of two different letters of credit with a first one spurring the creation of the second 1with a back to back letter of credit the buyer s bank issues one letter of credit to the intermediary or broker the intermediary s bank issues the other letter of credit to the seller with the original letter of credit from the buyer s bank in place the broker goes to his own bank and has a second loc issued with the seller as the beneficiary the seller is ensured of payment upon fulfilling the terms of the contract and presenting the appropriate documentation to the intermediary s bank in some cases the buyer and seller may not even have knowledge of each other s identities depending on the type of transaction this could be valuable to the parties involved in general letters of credit locs are one of the most secure instruments available to international traders according to the u s international trade administration while gathering a foreign buyer s credit information is challenging the exporter can be satisfied with the buyer s foreign bank s creditworthiness the importer or buyer is protected as well as the goods must be shipped before payment is sent 2back to back locs essentially substitute the two issuing banks credit for the buyer s credit and the intermediary s credit the two letters of credit used in a back to back transaction typically have advantages and disadvantages of back to back letter of credita back to back letter of credit can offer privacy to a buyer and seller they may be used as a substitute if a transferable letter of credit isn t available they can also help facilitate trade between parties who may be negotiating internationally and cannot verify one another s credit however fees and other charges may apply to a back to back letter of credit and the process involves multiple steps and letters where terms may get murky or vary as a result banks tend to discourage using back to back letters of credit 3 if the beneficiary doesn t achieve the terms laid out there could be a risk to the bank issuing the second letter of credit 1example of a back to back letter of credit transactioncompany xyz is in the u s and sells heavy machinery company abc is in china and wants to purchase heavy machinery from xyz however xyz does not want to take on the risk of defaulted payment by abc a london based trading firm agrees to broker a deal between the two companies the london firm wants to ensure that the trade is made and that it receives a commission for the deal back to back letters of credit can be used to make sure the transaction goes through so abc will request a letter of credit from an established chinese bank with the london based firm as beneficiary in turn the london firm will use that letter of credit to go to its own established bank in the u k and have it issue a letter of credit to xyz because the creditworthiness of the two banks is already established it stands in for the creditworthiness of the other companies xyz can now ship its heavy machinery knowing that once the transaction is complete it will be paid by the u k bank the broker is also assured of being paid the credit risk has been removed from the transaction | |
what is the risk of a back to back letter of credit | the primary risk is for the bank issuing the second letter of credit if the original beneficiary doesn t meet the terms and conditions or if there are issues with the settlement date s expiration as a result banks don t encourage their use generally a letter of credit is a more secure form of payment for an exporter and less so for the importer 2 | |
is a back to back letter of credit and transferable letter of credit the same | a back to back letter of credit is not the same as a transferable letter of credit with a transferable letter of credit the beneficiary can transfer the letter of credit s rights and protection to another party the transferable letter of credit must be either issued as transferable or amended to make it transferable a back to back letter of credit comprises two different letters of credit that are not transferrable | |
are back to back letters of credit irrevocable | typically both letters of credit are irrevocable letters of credit each letter can t be canceled or modified without all participants explicit agreement amendments can be complicated with a back to back letter of credit situation as the second letter depends on the first 3the bottom linethe term back to back letter of credit describes a transaction involving two separate letters of credit issued by banks on behalf of clients these are often used to finance international transactions by companies that want to avoid the risk of doing business with an unknown trading partner relying on this process while engaged in international trade can offer benefits and disadvantages particularly if the letters are not structured well consult with a financial professional or your banker to discuss the potential risks and rewards of a back to back letter of credit | |
what is a backdoor roth ira | a backdoor roth ira is a strategy rather than an official type of individual retirement account it is a technique used by high income earners who exceed roth ira income limits to convert their traditional ira to a roth ira the backdoor roth ira strategy is not a tax dodge when you transfer the assets of a traditional ira to a roth ira you owe taxes on any funds the principal earnings and appreciation that have not been taxed previously if the ira was funded solely with tax deductible contributions then the entire value of the transferred assets is taxed 1 as with any roth ira you should owe no further taxes when you make withdrawals if you follow the rules investopedia jessica olahunderstanding backdoor roth irasa roth ira allows taxpayers to set aside a few thousand dollars from their annual earnings in a retirement savings account the contributed money is after tax dollars meaning the funds are earnings that have been taxed in the year when they are contributed to the roth ira 2a roth ira differs from a traditional ira the traditional ira gives the earner an immediate tax break because they can take a tax deduction for their contributions in the year they are made and no taxes are due until the money is withdrawn when withdrawals are made usually after retirement the account holder will owe taxes on both the dollars invested and their earnings 3the problem for high income taxpayers is that individuals who earn above a certain amount aren t allowed to open or fund roth iras if your modified adjusted gross income magi exceeds statutory ceilings then the law starts phasing out the amount that you can contribute which means you cannot participate at all the limits are as follows traditional iras don t have income ceilings for participation and since 2010 the internal revenue service irs hasn t had income limits that restrict who can convert a traditional ira to a roth ira as a result the backdoor roth ira has become a tax planning opportunity for higher income taxpayers who ordinarily couldn t contribute to a roth ira 35the way that backdoor roth iras work has changed over the years although ira funds that were transferred to roth iras in pre 2018 conversions could be recharacterized as traditional ira contributions before 2018 the tax cuts and jobs act tcja of 2017 banned the strategy of recharacterizing converted funds in a roth ira back to a traditional ira contribution in conversions enacted after dec 31 2017 1some taxpayers who are ineligible to deduct ira contributions use after tax dollars to fund a traditional ira and pay taxes again when withdrawing from the account just to have an ira | |
how to create a backdoor roth ira | you can create a backdoor roth ira in one of three ways the custodial bank or brokerage for your ira should be able to help you with the mechanics if you have an employer managed plan you can contact the financial services firm that manages it to learn if your plan provides this opportunity order your copy of investopedia s what to do with 10 000 magazine for more wealth building advice tax implications of a backdoor roth iraremember that in an ira transfer or conversion to a roth ira you still need to pay taxes on any money in your traditional ira that hasn t been taxed for example if you contribute 6 000 to a traditional ira claim a deduction for the 6 000 on your tax return and then convert that money to a roth ira you ll owe taxes on the 6 000 you ll also owe taxes on whatever money that ira contribution earned between the date when it was contributed to the traditional ira and the date when you converted it to a roth ira 1 however if you make after tax contributions to a traditional ira that is contribute funds that are nondeductible and taxable that year these amounts will not be taxed on their transfer to the roth ira 6but if most of your ira contributions were deducted from your income and if your ira has accumulated earnings or made investments that have appreciated over a long period then most of the funds and investments that you convert to a roth ira likely will count as taxable income at the time of the conversion that could kick you into a higher tax bracket that year however you may not have to pay tax on all the money a pro rata rule applies to prevent taxing the amounts attributable to after tax contributions 6also the funds that you put into the roth are considered converted funds not contributions that means you must wait five years for penalty free access to the funds in your backdoor roth ira if you re under age 59 these converted funds differ from regular roth ira contributions which can be withdrawn anytime without taxes or penalties 7on the positive side a backdoor roth ira lets you get around the income and contribution limits that apply to traditional roth iras with a backdoor roth ira conversion these income and contribution limits don t apply benefits of a backdoor roth iraaside from getting around the limits why would taxpayers want to take the extra steps involved in doing the backdoor roth ira dance there are several good reasons for one roth iras don t have required minimum distributions rmds which means that account balances can create tax deferred growth for as long as the account holder is alive you can take out as much or as little as you want whenever you want or you can leave it all for your heirs 7another reason is that a backdoor roth contribution can mean significant tax savings over decades because roth ira distributions unlike traditional ira distributions are not taxable the main advantage of a backdoor roth ira as with roth iras in general is that you pay taxes upfront on your converted pretax funds and everything after that is tax free this tax benefit is greatest if you think that tax rates will rise in the future or that your taxable income will be higher in the years after your backdoor roth ira is established than it is now especially if you plan to withdraw after a distant retirement date | |
is a backdoor roth still allowed | under the law a backdoor roth individual retirement account is legally permissible and respected by the irs provided that tax law requirements are met | |
is a backdoor roth a good idea | the backdoor roth strategy can be beneficial if you earn too much to contribute to a roth ira or if you ve determined that a roth ira is better for your retirement | |
do you pay taxes twice on a backdoor roth ira | traditional ira contributions are tax deferred until withdrawals are taken when you convert your ira to a roth ira you pay taxes on your contributions and capital gains when you withdraw from your roth there are no taxes because you ve already paid them 3 so you only pay taxes once using the backdoor roth ira strategy the bottom lineif you re thinking of using the backdoor roth ira strategy crunch the numbers and consider the tax implications especially if you are converting the entire balance of a traditional ira depending on how much money is in the account and what your income tax rate is the amount of tax you owe could be huge even given that the backdoor roth ira strategy can have advantages especially for high earners roth iras don t have rmds so you can hold them forever and pass them on to your heirs another advantage is that a backdoor roth contribution can mean significant tax savings over the decades because roth ira distributions unlike traditional ira distributions are not taxable | |
what is backflush costing | backflush costing is a product costing system generally used in a just in time jit inventory system in short it is an accounting method that records the costs associated with producing a good or service only after they are produced completed or sold backflush costing is also commonly referred to as backflush accounting | |
how backflush costing works | flushing costs to the end of the production run eliminates the detailed tracking of expenses such as raw material and labor costs throughout the manufacturing process which is a feature of traditional costing systems this allows the company to simplify its expense tracking processes thus saving accounting and process costs but it may also limit the detail of information that the company retains related to individual costs for production and sales the total costs of a production run are recorded all at once at the end of the process companies using backflush costing therefore primarily work backward calculating the costs of products after they re sold finished or shipped to do this businesses assign standard charges to the goods they produce sometimes costs differ so companies eventually need to recognize the variances in standard costs and actual costs usually the costs of products are calculated during various stages of the production cycle by eliminating work in process wip accounts backflush costing is designed to simplify the accounting process and save businesses money advantages and disadvantages of backflush costingin theory backflushing appears to be a sensible way to avoid the many complexities associated with assigning costs to products and inventory not logging costs during the various production stages enable companies to save time and reduce their expenses companies looking for ways to reduce their bottom lines may use backflush costing but it isn t always an easy accounting method to implement the process of backflush costing makes it difficult for companies to audit because it doesn t always adhere to the basic fundamentals of accounting however backflushing can also be challenging to implement and is not an option available to all companies moreover there are some other big caveats businesses that do backflush costing lack a sequential audit trail and may not always conform to generally accepted accounting principles gaap special considerationscompanies using backflush costing generally meet the following three conditions | |
what is a backlog | a backlog is a buildup of work that needs to be completed the term backlog has a number of uses in accounting and finance it may for example refer to a company s sales orders waiting to be filled or a stack of financial paperwork such as loan applications that needs to be processed | |
when a public company has a backlog there can be implications for shareholders because the backlog may have an impact on the company s future earnings as having a backlog could suggest the firm is unable to meet demand | investopedia yurle villegasunderstanding a backlogthe term backlog is used to indicate the existing workload that exceeds the production capacity of a firm or department often used in construction or manufacturing the presence of a backlog can have positive or negative implications for example a rising backlog of product orders might indicate rising sales on the other hand companies generally want to avoid having a backlog as it could suggest increasing inefficiency in the production process likewise a falling backlog might be a portentous sign of lagging demand but may also signify improving production efficiency naturally unexpected backlogs can compromise forecasts and production schedules backlogs may also apply to companies that develop products services on a subscription basis such as saas software as a service providers a backlog in this case is not due to the company being unable to meet demand but because the time for performance or provision of the service i e future months of the subscription or contract has not yet been reached example of a backlogconsider a company that sells printed t shirts it has the capacity to print 1 000 t shirts each day typically this level of production is right in line with the demand for the company s shirts as it receives approximately 1 000 daily orders one month the company unveils a new t shirt design that quickly catches on among college students suddenly it is receiving 2 000 orders per day but its production capacity remains at 1 000 shirts per day because the company is receiving more orders each day than it has the capacity to fill its backlog grows by 1 000 shirts per day until it raises production to meet the increased demand real world examples | |
when apple aapl debuted the iphone x a 10th anniversary edition of the iphone in october 2017 overwhelming initial demand for the phone created a weeks long backlog on pre orders apple was forced to delay shipments to late november and then again to december for customers pre ordering the phone upon launch many criticized the backlog as an example of poor sales forecasting by apple which saw a similar situation happen when the firm debuted its apple watch product in 2015 | the 2008 housing crisis resulted in a backlog of foreclosures in which lenders had large inventories of residential properties they needed to sell and get off the books with homes going into foreclosure at a much faster rate than usual lenders did not have the capacity to process all the foreclosures in a timely manner in many cases these lender backlogs resulted in situations where delinquent borrowers were able to remain in their homes for several years without making any mortgage payments the housing recovery did not begin in earnest until such backlogs were mostly cleared | |
what is a backorder | a backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply the item may not be held in the company s available inventory but could still be in production or the company may need to still manufacture more of the product backorders are an indication that demand for a company s product outweighs its supply they may also be known as the company s backlog understanding backordersthe nature of the backorder and the number of items on backorder will affect the amount of time it takes before the customer eventually receives the ordered product the higher the number of items back ordered the higher the demand for the item backorders represent any amount of stock a company s customers have ordered but have not yet received because it currently isn t available in stock just because they may lack a supply of inventory that doesn t mean companies can t operate on backorder in fact companies can still do business even if they don t have inventory on the books keeping products on backorder helps boost demand retain and increase the customer base and creates value for their products a company s backorders are an important factor in its inventory management analysis the number of items on backorder and how long it takes to fulfill these customer orders can provide insight into how well the company manages its inventory a relatively manageable number of orders and a short turnaround time to fulfill orders generally mean the company is performing well on the other hand longer wait times and large backorders may be problematic | |
how to account for backorders | backorders or a company s backlog may be expressed as a dollar figure as in the value of sales or by the number of units ordered and or sold backorders often require special accounting companies normally inform customers that the product they ve ordered is on backorder when the order is placed and when delivery is expected companies should keep in contact with customers when there is a problem with fulfilling their backorders as promised to ensure orders aren t canceled the sale is then recorded on the company s books as a backorder rather than a completed sale if the customer decides to cancel the order this doesn t affect the company s bottom line and it won t have to reconcile its accounting records the company will then place the order with its manufacturer to deliver the goods once the shipment is received the company will then search for the purchase order and follow through with the delivery the sale can be recorded and then checked off as complete advantages of backordersthe term backorder may conjure up negative images but there can be positives to businesses that have these orders on the books keeping a large supply of stock requires storage space which in turn requires money companies that don t have their own storage centers have to pay for services to hold their inventory by keeping a small amount of stock in supply and the rest on backorder alleviates the need for excess extra storage and therefore reduces costs this cost reduction can be passed on to consumers who will likely return because of a company s low prices this is true when sales and demand for certain products is high especially for new releases of highly popular goods backorders also garner attention and some may be enticed to know more about items that have sold out although this may conjure negative connotations to some others will approach backordered goods as a good thing backordered goods are popular in high demand difficult to get and may appear as a status symbol problems with backordersif a company consistently sees items in backorder this could be taken as a signal that the company s operations are far too lean it may also mean the company is losing out on business by not providing the products demanded by its customers if a customer sees products on backorder and notices this frequently they may decide to cancel orders forcing the company to issue refunds and readjust their books | |
when an item is on backorder a customer may look elsewhere for a substitute product especially if the expected wait time until the product becomes available is long this can provide an opportunity for once loyal customers to try other companies products and potentially switch their loyalties difficulties with proper inventory management can lead to the eventual loss of market share as customers become frustrated with the company s lack of product availability | backorders may require additional resources in managing pre orders or clients that are waiting for their product instead of simply carrying inventory and selling it to customers a company must incorporate receiving orders managing obligations coordinating logistics and communicating to specific customers when their product is ready the company may also require heavier use of public communication to monitor the situation and further inform the product s availability some backorders are more important than others when a drug is expected to not be available for a period of time manufacturers must report anticipated shortages with the fda the fda then broadcasts the expected timeline of availability example of backorder | |
when apple inc releases new products they re often met with exuberant demand around the world early adopters often want to get their hands on the latest technology and many users plan on upgrading their old technology for the newer product | according to apple s website shipments will be sent when the items of order become available popular items that are not in stock will be noted with longer timeframes indicated on online orders some products may also not be eligible for deliveries with pre selected time windows this is truly a natural part of apple s business in the company s 10 k apple mentions that disruptions in the company s supply chain and sales and distribution channels resulting in interruptions of the supply of current products and delays in production ramps of new products | |
how long does a backorder take | a backorder is a specific situation relating to a direct company or product there is no regulation or industry standards that stipulate how long a backorder will take some companies may publicly disclose when they believe their backorder will be resolved while others will simply notify customers when their product is available | |
what does backorder mean | an item on backorder is no longer is stock and often in high demand the product availability is currently trying to be resolved the company may be trying to manufacture more goods resolve supply chain issues or deliver final products to their storefronts | |
what is the difference between backorder and out of stock | a backorder and out of stock are similar whereas out of stock is an indicator that good is not available a backorder often signifies that out of stock order may still be able to be ordered but is not available for immediate shipment a company may keep a product as out of stock if it does not wish to further sell more units of that product however a backordered product is more likely to return due to a temporary delay in product availability | |
why do backorders happen | backorders occur for several reasons on the supply side a company may simply run out of a good due to supply chain issues underestimated manufacturing capabilities or lack of delivery to physical storefronts on the demand side so many people may be interested in the product especially if it is a new release of a popular product | |
are backorders bad for business | backorders may be bad for business as customers may search for alternatives instead of waiting for their product to arrive however there are a few things to consider first some back ordered products like the next generation of video game consoles are not easily replaceable loyal customers are often willing to wait second back ordered goods may garner headlines regarding the popularity of the product | |
what is a backorder | a backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply the item may not be held in the company s available inventory but could still be in production or the company may need to still manufacture more of the product backorders are an indication that demand for a company s product outweighs its supply they may also be known as the company s backlog understanding backordersthe nature of the backorder and the number of items on backorder will affect the amount of time it takes before the customer eventually receives the ordered product the higher the number of items back ordered the higher the demand for the item backorders represent any amount of stock a company s customers have ordered but have not yet received because it currently isn t available in stock just because they may lack a supply of inventory that doesn t mean companies can t operate on backorder in fact companies can still do business even if they don t have inventory on the books keeping products on backorder helps boost demand retain and increase the customer base and creates value for their products a company s backorders are an important factor in its inventory management analysis the number of items on backorder and how long it takes to fulfill these customer orders can provide insight into how well the company manages its inventory a relatively manageable number of orders and a short turnaround time to fulfill orders generally mean the company is performing well on the other hand longer wait times and large backorders may be problematic | |
how to account for backorders | backorders or a company s backlog may be expressed as a dollar figure as in the value of sales or by the number of units ordered and or sold backorders often require special accounting companies normally inform customers that the product they ve ordered is on backorder when the order is placed and when delivery is expected companies should keep in contact with customers when there is a problem with fulfilling their backorders as promised to ensure orders aren t canceled the sale is then recorded on the company s books as a backorder rather than a completed sale if the customer decides to cancel the order this doesn t affect the company s bottom line and it won t have to reconcile its accounting records the company will then place the order with its manufacturer to deliver the goods once the shipment is received the company will then search for the purchase order and follow through with the delivery the sale can be recorded and then checked off as complete advantages of backordersthe term backorder may conjure up negative images but there can be positives to businesses that have these orders on the books keeping a large supply of stock requires storage space which in turn requires money companies that don t have their own storage centers have to pay for services to hold their inventory by keeping a small amount of stock in supply and the rest on backorder alleviates the need for excess extra storage and therefore reduces costs this cost reduction can be passed on to consumers who will likely return because of a company s low prices this is true when sales and demand for certain products is high especially for new releases of highly popular goods backorders also garner attention and some may be enticed to know more about items that have sold out although this may conjure negative connotations to some others will approach backordered goods as a good thing backordered goods are popular in high demand difficult to get and may appear as a status symbol problems with backordersif a company consistently sees items in backorder this could be taken as a signal that the company s operations are far too lean it may also mean the company is losing out on business by not providing the products demanded by its customers if a customer sees products on backorder and notices this frequently they may decide to cancel orders forcing the company to issue refunds and readjust their books | |
when an item is on backorder a customer may look elsewhere for a substitute product especially if the expected wait time until the product becomes available is long this can provide an opportunity for once loyal customers to try other companies products and potentially switch their loyalties difficulties with proper inventory management can lead to the eventual loss of market share as customers become frustrated with the company s lack of product availability | backorders may require additional resources in managing pre orders or clients that are waiting for their product instead of simply carrying inventory and selling it to customers a company must incorporate receiving orders managing obligations coordinating logistics and communicating to specific customers when their product is ready the company may also require heavier use of public communication to monitor the situation and further inform the product s availability some backorders are more important than others when a drug is expected to not be available for a period of time manufacturers must report anticipated shortages with the fda the fda then broadcasts the expected timeline of availability example of backorder | |
when apple inc releases new products they re often met with exuberant demand around the world early adopters often want to get their hands on the latest technology and many users plan on upgrading their old technology for the newer product | according to apple s website shipments will be sent when the items of order become available popular items that are not in stock will be noted with longer timeframes indicated on online orders some products may also not be eligible for deliveries with pre selected time windows this is truly a natural part of apple s business in the company s 10 k apple mentions that disruptions in the company s supply chain and sales and distribution channels resulting in interruptions of the supply of current products and delays in production ramps of new products | |
how long does a backorder take | a backorder is a specific situation relating to a direct company or product there is no regulation or industry standards that stipulate how long a backorder will take some companies may publicly disclose when they believe their backorder will be resolved while others will simply notify customers when their product is available | |
what does backorder mean | an item on backorder is no longer is stock and often in high demand the product availability is currently trying to be resolved the company may be trying to manufacture more goods resolve supply chain issues or deliver final products to their storefronts | |
what is the difference between backorder and out of stock | a backorder and out of stock are similar whereas out of stock is an indicator that good is not available a backorder often signifies that out of stock order may still be able to be ordered but is not available for immediate shipment a company may keep a product as out of stock if it does not wish to further sell more units of that product however a backordered product is more likely to return due to a temporary delay in product availability | |
why do backorders happen | backorders occur for several reasons on the supply side a company may simply run out of a good due to supply chain issues underestimated manufacturing capabilities or lack of delivery to physical storefronts on the demand side so many people may be interested in the product especially if it is a new release of a popular product | |
are backorders bad for business | backorders may be bad for business as customers may search for alternatives instead of waiting for their product to arrive however there are a few things to consider first some back ordered products like the next generation of video game consoles are not easily replaceable loyal customers are often willing to wait second back ordered goods may garner headlines regarding the popularity of the product | |
what is backup withholding | backup withholding is a tax that is levied on investment income at an established tax rate as the investor withdraws it for payments not subject to withholding payers are required to withhold the tax backup withholding helps to ensure that government tax collecting agencies such as the internal revenue service irs or canada revenue agency will be able to receive income taxes owed to them from investors earnings backup withholding may be applied when an investor has not met rules regarding taxpayer identification numbers tins at the time the investor withdraws his or her investment income the amount mandated by the backup withholding tax is remitted to the government immediately providing the tax collecting body with the required funds but leaving the investor with less short term cash flow | |
how backup withholding works | investors commonly earn income for example interest payments dividends and distributions from assets in which they have invested while this income is taxable at the time it is received the taxes owed on a calendar year s investment income only come due once every year during tax season investors could potentially spend all of their investment income before the annual income taxes come due this could render them unable to pay taxes leaving the irs with the difficult and expensive job of collecting the taxes owed it is primarily this risk that motivates the government to sometimes require backup withholding taxes to be levied by financial institutions at the time investment income is earned members who receive at least 10 in cooperative patronage dividends reported on irs form 1099 patr might also be subject to backup withholding as well some taxpayers are exempt from backup withholding if you ve reported your name and social security number ssn to the payer with form w 9 and it matches the irs documentation and if the irs has not notified you that you are subject to mandatory backup withholding you could be exempt 1payments subject to backup withholdingfor those not exempt the following are common payment types that could be subject to backup withholding backup withholding is used by the irs to make sure it collects taxes on income that an investor may have already spent before his or her tax bill comes due withholding due to incorrect informationtaxpayers may also be subject to backup withholding if they did not provide the correct tin or if they did not report dividend interest or patronage dividend income to the irs other types of payments also subject to backup withholding include rents royalty payments profits commissions fees and other payments for work as an independent contractor gambling winnings may also be subject to backup withholding if they were not subject to standard gambling withholding if a contractor or investor does not provide the correct tin to receive payments that are reportable on form 1099 the payer is required to withhold at a rate of 24 payers might also be required to withhold at that rate if the irs informs them that the payee s underreported interest or dividends on their income tax returns in such an instance the tax filer will be notified four times over 120 days of the issue and the intent to institute backup withholding if a tax filer s 1099 indicates backup withholding that amount can be applied as a credit against any income tax filing for that year 3withholding due to unreported investment incomethe irs may also require backup withholding if you or your broker don t or didn t report dividend or interest income received from investments held this is less common due to automated reporting by most brokerage firms if you fail to report or underreported interest or dividends the irs will notify you via four notices mailed to your home address over a period of seven months regarding future backup withholding 3 | |
is backup withholding a bad thing | it could be a bad thing since it ties up money with the irs that could otherwise be used for investment purposes if you are subject to backup withholding however you may receive some of that money back as a tax refund who is exempt from backup withholding most american citizens are exempted from backup withholding so long as their tax identification number or social security number is on file with their broker and corresponds with their legal name retirement accounts and unemployment income are also exempted who is subject to backup withholding you may be subject to backup withholding if you are a foreign citizen or are an american who has not provided your correct tin ssn made the proper certifications or reported all your taxable interest and dividends on your tax return to the irs 4the bottom linethe irs imposes backup withholding on certain investment income to prevent tax shortfalls but the practice also ties up funds that could otherwise be invested thankfully most americans are exempted from backup withholding so long as a social security number or taxpayer id is on file and matches the personal information of the brokerage account holder | |
what is backward integration | backward integration is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain in other words backward integration is when a company buys another company that supplies the products or services needed for production for example a company might buy their supplier of inventory or raw materials companies often complete backward integration by acquiring or merging with these other businesses but they can also establish their own subsidiary to accomplish the task complete vertical integration occurs when a company owns every stage of the production process from raw materials to finished goods services understanding backward integrationcompanies often use integration as a means to take over a portion of the company s supply chain a supply chain is the group of individuals organizations resources activities and technologies involved in the manufacturing and sale of a product the supply chain starts with the delivery of raw materials from a supplier to a manufacturer and ends with the sale of a final product to an end consumer backward integration is a strategy that uses vertical integration to boost efficiency vertical integration is when a company encompasses multiple segments of the supply chain with the goal of controlling a portion or all of their production process vertical integration might lead a company to control its distributors that ship their product the retail locations that sell their product or in the case of backward integration their suppliers of inventory and raw materials in short backward integration occurs when a company initiates a vertical integration by moving backward in its industry s supply chain an example of backward integration might be a bakery that purchases a wheat processor or a wheat farm in this scenario a retail supplier is purchasing one of its manufacturers therefore cutting out the intermediary and hindering competition investopedia julie bangbackward integration vs forward integrationforward integration is also a type of vertical integration which involves the purchase or control of a company s distributors an example of forward integration might be a clothing manufacturer that typically sells its clothes to retail department stores instead opens its own retail locations conversely backward integration might involve the clothing manufacturer buying a textile company that produces the material for their clothing in short backward integration involves buying part of the supply chain that occurs prior to the company s manufacturing process while forward integration involves buying part of the process that occurs after the company s manufacturing process netflix inc which started out as a dvd rental company supplying tv and film content used backward integration to expand its business model by creating original content advantages of backward integrationcompanies pursue backward integration when it is expected to result in improved efficiency and cost savings for example backward integration might cut transportation costs improve profit margins and make the firm more competitive costs can be controlled significantly from production through to the distribution process businesses can also gain more control over their value chain increasing efficiency and gaining direct access to the materials that they need in addition they can keep competitors at bay by gaining access to certain markets and resources including technology or patents disadvantages of backward integrationbackward integration can be capital intensive meaning it often requires large sums of money to purchase part of the supply chain if a company needs to purchase a supplier or production facility it may need to take on large amounts of debt to accomplish backward integration although the company might realize cost savings the cost of the additional debt might reduce any of the cost savings also the added debt to the company s balance sheet might prevent them from getting approved for additional credit facilities from their bank in the future in some cases it can be more efficient and cost effective for companies to rely on independent distributors and suppliers backward integration would be undesirable if a supplier could achieve greater economies of scale meaning lower costs as the number of units produced increases sometimes the supplier might be able to provide input goods at a lower cost versus the manufacturer had it became the supplier as well as the producer companies that engage in backward integration might become too large and difficult to manage as a result companies might stray away from their core strengths or what made the company so profitable a real world example of backward integrationmany large companies and conglomerates conduct backward integration including amazon com inc amazon began as an online book retailer in 1995 procuring books from publishers in 2009 it opened its own dedicated publishing division acquiring the rights to both older and new titles it now has several imprints although it still sells books produced by others its own publishing efforts have boosted profits by attracting consumers to its own products helped control distribution on its kindle platform and given it leverage over other publishing houses in short amazon used backward integration to expand its business and become both a book retailer and a book publisher | |
what is backwardation | backwardation is when the current price or spot price of an underlying asset is higher than prices trading in the futures market understanding backwardationthe slope of the curve for futures prices is important because the curve is used as a sentiment indicator the expected price of the underlying asset is always changing in addition to the price of the future s contract based on fundamentals trading positioning and supply and demand the spot price is a term that describes the current market price for an asset or investment such as a security commodity or a currency the spot price is the price at which the asset can be bought or sold currently and will change throughout a day or over time due to supply and demand forces | |
should a futures contract strike price be lower than today s spot price it means there is the expectation that the current price is too high and the expected spot price will eventually fall in the future this situation is called backwardation | for example when futures contracts have lower prices than the spot price traders will sell short the asset at its spot price and buy the futures contracts for a profit this drives the expected spot price lower over time until it eventually converges with the futures price for traders and investors lower futures prices or backwardation is a signal that the current price is too high as a result they expect the spot price will eventually fall as the expiration dates of the futures contracts approaches backwardation is sometimes confused with an inverted futures curve in essence a futures market expects higher prices at longer maturities and lower prices as you move closer to the present day when you converge at the present spot price the opposite of backwardation is contango where the futures contract price is higher than the expected price at some future expiration backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the future through the futures market the primary cause of backwardation in the commodities futures market is a shortage of the commodity in the spot market manipulation of supply is common in the crude oil market for example some countries attempt to keep oil prices at high levels to boost their revenues traders that find themselves on the losing end of this manipulation and can incur significant losses since the futures contract price is below the current spot price investors who are net long on the commodity benefit from the increase in futures prices over time as the futures price and spot price converge additionally a futures market experiencing backwardation is beneficial to speculators and short term traders who wish to gain from arbitrage however investors can lose money from backwardation if futures prices continue to fall and the expected spot price does not change due to market events or a recession also investors trading backwardation due to a commodity shortage can see their positions change rapidly if new suppliers come online and ramp up production futures basicsfutures contracts are financial contracts that obligate a buyer to purchase an underlying asset and a seller to sell an asset at a preset date in the future a futures price is the price of an asset s futures contract that matures and settles in the future for example a december futures contract matures in december futures allow investors to lock in a price by either buying or selling the underlying security or commodity futures have expiration dates and preset prices these contracts allow investors to take delivery of the underlying asset at maturity or offset the contract with a trade the net difference between the purchase and sale prices would be cash settled backwardation can be beneficial to speculators and short term traders wishing to gain from arbitrage backwardation can be used as a leading indicator signaling that spot prices will fall in the future investors can lose money from backwardation if futures prices continue to move lower trading backwardation due to a commodity shortage can lead to losses if new suppliers come online to boost production backwardation vs contangoif prices are higher with each successive maturity date in the futures market it s described as an upward sloping forward curve this upward slope known as contango is the opposite of backwardation another name for this upward sloping forward curve is forwardation in contango the price of the november futures contract is higher than october s which is higher than july s and so on under normal market conditions it makes sense that prices of futures contracts increase the farther the maturity date since they include investment costs such as carrying costs or storage costs for a commodity | |
when futures prices are higher than current prices there s the expectation that the spot price will rise to converge with the futures price for example traders will sell or short futures contracts that have higher prices in the future and purchase at the lower spot prices the result is more demand for the commodity driving the spot price higher over time the spot price and the futures price converge | a futures market can shift between contango and backwardation and remain in either state for a short or extended period backwardation examplefor example let s say the there was a crisis in the production of west texas intermediate crude oil due to poor weather as a result the current supply of oil falls dramatically traders and businesses rush in and buy the oil which pushes the spot price to 150 per barrel however traders expect the weather issues to be temporary as a result the prices of futures contracts for the end of the year remain relatively unchanged at 90 per barrel the oil markets would be in backwardation over the course of the next few months the weather issues are resolved and crude oil production and supplies get back to normal levels over time the increased production pushes down spot prices to converge with the end of year futures contracts | |
what is bad credit | bad credit refers to a person s history of not paying bills on time and the likelihood that they will fail to make timely payments in the future for individuals it is often reflected in a low credit score businesses can also have bad credit having bad credit makes it difficult to borrow money especially at competitive interest rates understanding bad creditmost americans who have ever borrowed money or signed up for a credit card will have a credit file at one or more of the three major credit bureaus equifax experian and transunion the information in those files including how much money they owe and whether they have paid their bills on time is used to compute their credit score a number that s intended as a guide to their creditworthiness the most common credit score in the united states is the fico score named for the former fair isaac corp which devised it a fico score is made up of five major elements assigned different weights 1examples of bad creditfico scores range from 300 to 850 and borrowers with scores of 579 or lower are generally considered to have bad credit according to experian about 62 of people with scores at or below 579 are likely to become seriously delinquent on their loans in the future making them poor risks for lenders 3scores from 580 to 669 are labeled as fair these borrowers are substantially less likely to become seriously delinquent on loans making them much less risky to lend to than those with bad credit scores however even borrowers within this range may be forced to pay higher interest rates or have trouble securing loans at all compared with borrowers who are closer to that top 850 mark 4 | |
how to improve bad credit | if you have bad credit or fair credit there are steps you can take to get your credit score above 669 and keep it there here are some tips for accomplishing that straight from fico |
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