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when preparing company financials for the lifo method the difference in costs in inventory between lifo and fifo is the lifo reserve therefore a company s lifo reserve fifo inventory lifo inventory lifo reserve is usually tracked so that companies using different methods of accounting can be accurately compared | in order to ensure accuracy a lifo reserve is calculated at the time the lifo method was adopted the year to year changes in the balance within the lifo reserve can also give a rough representation of that particular year s inflation assuming the type of inventory has not changed accounting professionals have discouraged the use of the word reserve encouraging accountants to use other terms like revaluation to lifo excess of fifo over lifo cost or lifo allowance benefits of lifo reserveas stated one of the benefits of the lifo reserve is to allow investors and analysts to compare companies that use different accounting methods equally the most important benefit is that it allows a comparison between lifo and fifo and the ability to understand any differences including how taxes might be impacted this allows companies to better adjust their financial statements and budget in regards to sales costs taxes and profits | |
what is the lightning network | the lightning network is a second layer for bitcoin btc that uses micropayment channels to scale the blockchain s capability and handle transactions more efficiently and cheaply it is a technological solution designed to solve glitches associated with bitcoin by introducing off chain transactions its channel is a transaction mechanism between two parties in which each can make or receive payments from the other understanding the lightning networkat first bitcoin was intended to be a decentralized payment system in which the users could remain anonymous and access it from anywhere it became popular enough that the blockchain couldn t handle the number of transactions occurring joseph poon and thaddeus dryja first proposed the lightning network in 2016 and it has been under development since then the problems the lightning network was devised to solve were bitcoin s slow transaction time throughput and costs 1to counter slow transaction speeds and excessive energy use developers created cryptocurrency layers the first layer is the primary blockchain the layer on top of the first one is the secondary layer and complements the layer below it by adding functionality the lightning network can also be used to handle other types of off chain transactions involving exchanges between cryptocurrencies | |
what issues does the lightning network try to address | some issues the lightning network attempts to correct are the lightning network allows users to open channels so that they can send multiple transactions to each other without waiting for the slower main net to confirm single exchanges between the opening and closing of a channel parties can shift funds between themselves as needed once the channel is closed the transactions go to the main net for confirmation concerns about the lightning networkthe most obvious problem with the lightning network is that it could lead to a replication of the hub and spoke model that characterizes today s financial systems in the current model banks and financial institutions are the primary intermediaries through which all transactions occur businesses that invest in lightning network nodes may become similar hubs or centralized nodes in the network by having more open connections with others other concerns are fraud fees hacks and price volatility the lightning network had a network capacity across all channels of 4 857 btc on may 8 2024 down from 5 471 btc in mid 2023 2one risk when using the lightning network is closed channel fraud this happens when a user closes a channel logging off and goes offline before the transaction completes for example suppose sam and judy are transacting and one has malicious intent the dishonest party may be able to steal coins from the other participant using a technique called fraudulent channel close let s say sam and judy each put up an initial deposit of 0 5 btc to open a channel and a transaction of 1 btc has taken place in which sam purchased goods from judy if judy logs off closes the channel after transferring the goods and sam doesn t sam could broadcast the initial state the time before the 1 btc was transferred meaning they both get their initial deposits back as if no transactions were done in other words sam would have received 1 btc worth of goods for free and the deposit is returned this makes it necessary for third parties to run on nodes to prevent fraud within the lightning network called a watchtower the watchtower monitors the transactions and helps prevent a fraudulent channel close transaction fees are associated with using the lightning network they are a combination of routing charges for routing payment information between lightning nodes opening and closing channels and bitcoin s usual transaction fees once the two parties settle the bill they must record a closing transaction for the agreed amount on the blockchain including the fee charged for forwarding the transactions this is either a base fee a set fee or a fee rate a percentage of the transaction 3the lightning network is also believed to be vulnerable to hacks and thefts because payment channels wallets and application programming interfaces apis can all be hacked individual payment channels between various parties combine to form a network of lightning network nodes that can route transactions among themselves the interconnections between different payment channels result in the lightning network another risk to the network is congestion caused by a malicious attack if the payment channels become congested and there s a malicious hack or attack the participants may not be able to get their money back fast enough due to the congestion attackers can also use a denial of service attack to congest a channel essentially freezing it in these types of attacks the attacker could use the congestion to steal funds from parties who are unable to withdraw their funds because of the network freeze 4 | |
what is the lightning network | the lightning network is a sidechain created to assist blockchains in processing more transactions and address scaling issues | |
how do i access the lightning network | you can download a wallet compatible with the lightning network to start using it | |
which crypto uses the lighting network | the lightning network was built for bitcoin but litecoin also uses it 5the bottom linethe lightning network developed by lightning labs is a second layer for bitcoin which uses micropayment channels to scale the blockchain s capability and handle transactions more efficiently and cheaply it is a solution designed to solve issues on the bitcoin blockchain through off chain transactions the lightning network isn t impregnable and may be subject to various schemes such as replication of the hub and spoke model closed channel fraud hacks and malicious attacks the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info | |
what is like for like sales | like for like sales are used as an adjusted growth metric that includes revenues generated from stores or products with similar characteristics while omitting any with distinct differences that could skew the numbers like for like sales are also referred to as comparable store sales comps same store sales or identical store sales investopedia tara anandunderstanding like for like saleslike for like sales serve as a method of financial analysis that is used to identify which of a company s products divisions or stores are contributing to its growth and which are lagging it also excludes extraneous factors that could artificially inflate or deflate the numbers such as a major foreign acquisition like for like sales analysis helps companies and investors gain insight into which products are contributing to a company s growth or decline it is commonly used when making granular sales comparisons such as comparing sales in specific regions or comparing two retailers selling identical products it is particularly helpful when a company operates more than one type of retail operation like walmart inc s walmart and sam s club stores | |
when analyzing like for like sales segments are typically grouped to show their percentage growth rates for a particular time period as in any financial analysis like for like data can be compared to the same quarter in a previous year the prior quarter or across several sequential quarters | a company s quarterly financial reporting often includes the like for like metrics it considers significant to its business benefits of like for like salesretail companies use the like for like metric most often for their insight into existing stores versus newly opened stores if a retail company has a high like for like store sales growth rate and a high total revenue growth rate it can be seen as a sign that established stores are driving growth if a company has an average like for like store sales growth rate but a high total revenue growth rate it can be a sign that new stores or new products are drawing shoppers attention like for like sales metrics help companies know if a product or store is contributing to its bottom line and if it is experiencing desired growth it can also help companies decide whether opening a new location or expanding production is worthwhile also like for like sales can reveal if a new store is taking sales away from established locations which is known as cannibalization | |
how to improve like for like sales | improving like for like sales translates to increased revenues and a healthier bottom line to improve like for like sales companies can employ several strategies promotions and sales are effective ways to increase sales and drive traffic and it sets the business apart from its competitors these events must be carefully planned and executed to protect profits and encourage customers to continue purchasing when done properly customer loyalty increases and new customers are converted because there is no industry standard for calculating like for like sales they are not usually used as the sole metric for measuring growth and performance companies can also increase like for like sales by gathering customer information and using it to expand their customer base and increase sales collecting customer data can help companies identify what s important to customers and how to craft future promotions and sales this can be achieved through incentive or rewards programs whereby customer data is gathered in exchange for rewards and exclusive or early access to sales most importantly companies can stay in front of the customer promoting new products and offering deals to encourage purchases special considerationsa company s fourth quarter reporting is often the best time to look at a company s results and specifically at its like for like sales metrics as it provides a comparison based on the full fiscal year and prior fiscal year in addition to reporting sales revenue by comparable store sales or geographical store sales companies may use other segmentation approaches that are worth following in particular global companies have to deal with foreign exchange rates which can affect sales revenue many of these companies will include details on currency adjustments and how they influenced sales and net income real world examplelike for like or same store sales commonly control openings and closings by including only locations that have been in operation for a year or more this also is key to isolating growth catalysts mcdonald s corp reported a global comparable sales increase of 7 5 in the first quarter of 2021 with a u s comparable store sales increase of 13 6 while total sales revenues increased 9 overall 1 what does that tell us mcdonald s opened a lot of new stores but existing store sales grew relatively modestly | |
what is a like kind exchange | a like kind exchange is a tax deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset until the passage of tax legislation in december 2017 that could have included the exchange of one business for another or one piece of tangible property such as artwork or heavy equipment for another after 2017 a like kind exchange applies only to the exchange of a business or real estate investment property for another property | |
when a commercial property or investment property is sold for a gain the investor is required to pay a capital gains tax on the profit earned all capital gains are taxed at either the short term capital gains rate between 10 to 37 for profits made on a sale within one year or the long term rate which falls between 10 to 20 for profits made on a sale after one year of the initial purchase date | a like kind exchange is also known as a 1031 exchange or a starker exchange however section 1031 of the internal revenue code irc exempts an investor from making a tax payment on a gain if the proceeds from the sale or disposal of the property are reinvested in a similar property of equal or greater value as part of a qualifying like kind exchange any real estate except for one s own personal residence is considered like kind to any other real estate generally any real estate property held for productive use in the trade or business or for investment qualifies for a like kind exchange a taxpayer that sells a piece of investment property and buys another within a stipulated time limit will not have to pay tax on the first disposal they will have to pay tax upon sale or disposal of the second property unless another like kind exchange is done in which case the tax payment will be deferred again there are several important considerations to keep in mind with a like kind exchange to ensure that a tax liability is not created upon the sale of the first asset there are some limitations on the amount of capital gain that is tax deferred so ensure that you check the latest tax rules before proceeding with a like kind exchange special considerationsin addition to the tax deferral benefits a like kind exchange allows the seller to defer their depreciation recapture the gain received from the sale of depreciable capital property that must be reported as income for income tax purposes a taxpayer can also avoid state taxes on like kind exchanges for example some states require that either a buyer or seller pay state income taxes when a property is sold known as state mandatory withholding property transferred in a like kind exchange however can receive an exemption to claim the exemption the taxpayer will need to sign an exemption form or certificate provided by the state some states require the seller to submit the exemption 20 days before closing while other states may allow the exemption form to be submitted at closing advantages and disadvantages of a like kind exchangethe most glaring benefit of a like kind exchange is the favorable tax treatment under this exchange an asset can be replaced with a like kind asset without triggering a taxable event the exchange need not be with an asset identical to the one being replaced it must be in the same asset class the irs sets no limit on how often someone can do a 1031 exchange so investors can continuously look for more lucrative opportunities also money that would have been used to pay capital gains taxes is available for reinvestment although a like kind exchange offers tax benefits they are temporary taxes are deferred not eliminated at some point capital gains taxes will be due also if the exchange does not take place within the prescribed period or according to irs rules the transaction will become taxable just as capital gains taxes are deferred so are losses a like kind exchange that includes losses must be carried forward tax deferral of capital gainsmore money to reinvestno limit on number of exchangesstrict irs rules and regulationslosses are deferredtax obligation remainsexample of a like kind exchangea like kind exchange is ideal for a business owner looking to sell their business and invest in another one or a real estate investor looking to sell a rental property and buy a similar one an 8824 form must be filed with the internal revenue service irs detailing the terms of the deal gain recognized because boot cash liabilities or other property that is not like kind and that is given or received in a like kind exchange was received is reported on form 8949 schedule d form 1040 or form 4797 as applicable if depreciation must be recaptured then this recognized gain may have to be reported as ordinary income like kind exchange faqsthe third party intermediary or qualified intermediary fulfills documentation requirements and ensures that sales proceeds are held until the exchange is complete and that the exchange adheres to irs guidelines given the complexity of these transactions there are advantages to working with a full service 1031 exchange company with an established track record for a successful like kind exchange that straddles two years the taxpayer will report the transaction on irs form 8824 1 the exchange will be reported for the year in which the exchange began for exchange funds received in the next tax year the taxpayer will report those proceeds on irs form 6252 for a failed like kind exchange that straddles two tax years the taxpayer may be required to report any gains under the installment method 2 even though they don t qualify for the like kind exchange they still may be able to defer gains for one year a loss is not realized until the transaction becomes taxable 3 under a like kind exchange capital losses are tax deferred just like capital gains are the bottom linea like kind exchange offers favorable tax benefits to those who qualify taxpayers can continue to defer capital gains tax indefinitely and have no limits on how often they can perform like kind exchanges the irs sets strict guidelines on what can be exchanged and when despite its benefits taxpayers must be aware that losses under a like kind exchange are deferred and taxes are not avoidable | |
what is a like kind property | the term like kind property refers to two real estate assets of a similar nature regardless of grade or quality that can be exchanged without incurring any tax liability the internal revenue code irc defines a like kind property as any held for investment trade or business purposes under section 1031 making them a 1031 exchange 1 this means both properties involved in the exchange must be for business or investment purposes personal residences therefore do not qualify as like kind properties 2understanding like kind propertiespeople or businesses that hold qualifying business or investment properties can exchange them in a like kind exchange this is known as a tax deferred or 1031 exchange under section 1031 of the u s tax code allowing the seller to avoid paying capital gains on the exchange the like kind property must meet the definition set out by the internal revenue service irs to qualify for a section 1031 transfer 2 in order to qualify for tax deferral like kind properties cannot be sold directly they must be exchanged 1the like kind property also must be within the united states to qualify 2 so a seller cannot use the proceeds from selling a hotel in the u s to buy a hotel in dubai and expect to defer capital gains on the sale securities stocks bonds partnership interests and other financial assets are excluded from the definition of like kind property securities stocks bonds partnership interests and other financial assets are not considered like kind properties and are exempt from tax deferrals 2like kind exchanges can take several different forms in a simultaneous exchange the two properties can be exchanged on the same day there s also the deferred exchange in which the party has 180 days to finalize the exchange after it takes place for example if an investor sells farmland they have 45 days to identify a replacement property the purchase of the like kind property must be completed within 180 days of the farmland sale or by the due date for the tax return that year the irs may grant an extension on the taxes to allow for the like kind exchange to be completed before filing 2many people believe that like kind properties must be of the same size or type to qualify but that s not true different assets can be exchanged as long as they qualify primary or principal residences which are for personal use for the most part do not qualify and cannot be exchanged properties must be held for business or investment purposes here are a few examples of like kind property exchanges special considerationsthe like kind property exchange for real estate transactions is still in force but various changes to the tax code have chewed away at other parts of the definition in the past the like kind property exchange was used for assets that include everything from cars to art to cryptocurrency holdings the 1031 exchange process can be quite complex and any missteps can be very costly therefore it may be worthwhile to work with a reputable full service 1031 exchange company in general these companies are much less expensive than paying an attorney by the hour because of their scale and you may gain peace of mind by contracting a firm with a solid track record in dealing with these transactions the tax cuts and jobs act tcja passed in december 2017 removed everything but real estate held for business trade or investment 3 there has been a robust debate on why real estate should enjoy such favored tax status when other investments like machinery and equipment must deal with capital gains on every sale regardless of reinvestment as of 2021 however the like kind property exchange is still an excellent way to build tax deferred wealth in real estate | |
what is the lilly ledbetter fair pay act | the lilly ledbetter fair pay act of 2009 is a law enacted by congress to bolster worker protections against pay discrimination the act allows individuals facing pay discrimination to seek rectification under federal anti discrimination laws the law clarifies that discrimination based on age religion national origin race sex and disability will accrue every time the employee receives a paycheck that is deemed discriminatory it was the first bill president barack obama signed into law and is one of a number of federal laws designed to protect the rights of workers 1understanding the lilly ledbetter fair pay actthe lilly ledbetter fair pay act reinstated the protection against pay discrimination that had been removed by the supreme court in ledbetter v goodyear tire rubber co in 2007 it restored previous protections regarding the equal treatment of employees most notably title vii of the civil rights act of 1964 the 2009 statute clarified that any inequitable payment is unlawful even if it is the result of a pay decision made in the past 3the act is named in honor of lilly ledbetter a former manager at a goodyear tire rubber co plant in alabama after ledbetter discovered that her male peers were receiving substantially higher pay for similar roles she filed a complaint with the equal employment opportunity commission eeoc in 1998 ledbetter filed an equal pay lawsuit alleging pay discrimination on the basis of sex under title vii of the civil rights act of 1964 the trial jury awarded her back pay and more than 3 3 million in compensatory and punitive damages 4however the supreme court upheld a lower court ruling that said claims like ledbetter s had to be filed within 180 days of an employer s decision to pay a worker less even if the worker didn t learn about the unfair pay until much later 5 as a result ledbetter never collected any kind of settlement from goodyear the act is named in honor of lilly ledbetter who sued her employer goodyear tire rubber co for paying her substantially less than her male peers ledbetter won the lawsuit but then saw the decision get overturned the ruling and a dissenting opinion by justice ruth bader ginsburg in which she wrote once again the ball is in congress s court ignited activist groups who saw the court s decision as a setback for women and civil rights 6this led to the creation of a bill that bore ledbetter s name and gives employees the right to file suit 180 days after the last pay violation and not only 180 days after the initial pay disparity in effect each paycheck restarts the 180 day countdown to file a claim 2if you believe you are being paid less than your co workers because of your race color religion sex national origin age or disability you can file a complaint with the eeoc the complaint process is explained on the agency s website 7pay discrimination in 2024one documented area of pay discrimination is the pay gap between men and women in 2022 women s annual earnings were 84 of men s according to data published by the u s census bureau 8women of color are even more discriminated against black latina and native american women are paid 64 55 and 59 respectively what non hispanic white men are paid 910although the slogan equal pay for equal work dates back to the 1860s congress didn t take major action to address the gender wage gap until the passage of the equal pay act in 1963 11many experts believe that the practice of prospective employers asking job candidates about salary history furthers discrimination and the pay gap in recent years a growing number of states and municipalities have addressed this issue as of august 2023 22 states have adopted measures that prohibit some employers from asking about salary history 12prohibiting employers from asking about salary history seems to work according to a study authored by economists at the boston university school of law women s pay rises 8 to 9 under salary history bans while the pay of black workers increases 13 to 16 13 | |
what impact did the lily ledbetter fair pay act have | the lily ledbetter fair pay act allowed women and other people being discriminated against to dispute pay disparities from any period of their career they could contest their current salary based on their starting salary from eight years ago on the basis that their starting salary was discriminatorily low the impact is that it allows people to contest their salary for discriminatory reasons at any point in their career instead of within a certain time period as was the law before did lily ledbetter receive backpay in her first trial against goodyear the judge ruled in her favor and awarded her backpay as well as the cost of compensatory and punitive damages however goodyear appealed the case because she had not filed a complaint within 180 days and won 14was the lily ledbetter fair pay act effective policies like the lily ledbetter fair pay act can help narrow the gender pay gap however discrimination still exists indicating that more action may be needed the bottom linethe lily ledbetter fair pay act is just one of the many advances made to prevent people from getting paid less because of their age religion national origin race sex or a disability but there is still a way to go discriminatory pay gaps still exist the lily ledbetter fair pay act serves as one of the protections that those who are discriminated against can rely on to help equalize their pay | |
what is limit down | limit down is a decline in the price of a futures contract or a stock large enough to trigger trading restrictions under exchange rules limits on the speed of market price movements up or down aim to dampen unusual volatility and to give traders time to react to market moving news if any trading curbs triggered by extreme price movements are sometimes called circuit breakers limit down measures the decline from a reference price usually but not always the prior session s closing price the limit down is typically expressed as a percentage of the reference price but occasionally in absolute terms as a dollar value 1understanding limit downtrading curbs including limit down halts are designed to limit self reinforcing plunges and surges in market prices based on the behavior of other market participants and in response to late breaking information once the limit down price is reached trading restrictions kick in these can range from a trading halt as short as five minutes to one that lasts for the remainder of the day some rules permit trading to continue with limit down as the minimum price 2limit down in futures marketsthe london metal exchange adopted a limit down rule restricting trading to a pre set percentage decline from the prior closing price in march 2022 in response to volatile trading in nickel futures 3cme group energy futures impose a two minute trading pause when markets move up or down more than 10 in an hour 2for lumber and agricultural products cme group sets the limit down as a change in dollar terms from the settlement price in the prior session the limits are reset twice a year based on a percentage of the average price over a preceding 45 day period 4stock market circuit breakersu s stock markets are subject to trading restrictions triggered by severe daily declines in the s p 500 index as follows 5u s stock markets were halted for 15 minutes after a 7 intraday drop in the s p 500 index on four occasions during the sell off sparked by the covid 19 pandemic in march 2020 6limit down for individual stocksthe so called limit up limit down rule in effect since 2012 requires trading starts lasting 5 to 10 minutes for stocks experiencing excessive volatility for stocks included in the s p 500 or the russell 1000 indexes and certain exchange traded products the trading pause starts once the price moves up or down at least 5 from the average price in the preceding five minute period for securities priced above 3 for other stocks priced above 3 a move of 10 from the same reference price is grounds for a five minute halt 7the limit up limit down rule and the s p 500 circuit breakers were adopted after the 2010 flash crash which saw the s p 500 drop nearly 9 at the intraday lows of may 6 2010 8 | |
what is a limit order | a limit order in the financial markets is a direction to purchase or sell a stock or other security at a specified price or better this stipulation allows traders to better control the prices at which they trade a limit can be placed on either a buy or a sell order the price is guaranteed but the filling of the order is not limit orders will be executed only if the price meets the order qualifications the alternative to a limit order is a market order which calls for a trade to be executed at the prevailing market price without any price limit specified investopedia joules garcia | |
how limit orders work | a limit order is the use of a pre specified price to buy or sell a security for example if a trader is looking to buy xyz s stock but has a limit of 14 50 they will only buy the stock at a price of 14 50 or lower if the trader is looking to sell shares of xyz s stock with a 14 50 limit the trader will not sell any shares until the price is 14 50 or higher by using a buy limit order the investor is guaranteed to pay the buy limit order price or better but it is not guaranteed that the order will be filled a limit order gives a trader more control over the execution price of a security especially if they are fearful of using a market order during periods of heightened volatility there are various times to use a limit order such as when a stock is rising or falling very quickly and a trader is fearful of getting a bad fill from a market order additionally a limit order can be useful if a trader is not watching a stock and has a specific price in mind at which they would be happy to buy or sell that security limit orders can also be left open with an expiration date limit order examplea portfolio manager wants to buy tesla inc s tsla stock but believes its current valuation at roughly 750 per share is too high and would like to buy the stock should it fall to a specific price the pm instructs his traders to buy 10 000 shares of tesla should the price fall below 650 good til canceled the trader then places an order to buy 10 000 shares with a 650 limit should the stock fall below that price the trader can begin buying the stock the order will remain open until the stock reaches the pm s limit or the pm cancels the order additionally the pm would like to sell amazon com inc s amzn stock but feels its current price of roughly 2 300 is too low the pm instructs his trader to sell 5 000 shares should the price rise above 2 750 good until canceled the trader will then put the order out to sell 5 000 shares with a 2 750 limit brokerage firms may not allow limit orders if they are illogical i e if a limit to buy is placed at greater than price brokerage firms may also offer this service to investors for free limit orders vs market orders | |
when an investor places an order to buy or sell a stock there are two main execution options in terms of price place the order at the market or at the limit market orders are transactions meant to be executed as quickly as possible at the present or market price conversely a limit order sets the maximum or minimum price at which you are willing to buy or sell brokers will frequently set higher fees for completing the more complicated limit order | buying stocks can be thought of as an analogy to buying a car with a car you can pay the dealer s sticker price and get the car or you can negotiate a price and refuse to finalize the deal unless the dealer meets your price the stock market can be thought of as working in a similar way a market order deals with the execution of the order the price of the security is secondary to the speed of completing the trade limit orders deal primarily with the price if the security s value is currently resting outside of the parameters set in the limit order the transaction does not occur | |
what is a limit order | a limit order is a direction given to a broker to buy or sell a security at a specific price or better it is a way for traders to execute trades at desired prices without having to constantly monitor markets it is also a way to hedge risk and ensure losses are minimized by capturing sale prices at certain levels | |
how does a limit order work | a limit order is placed with your broker that limit order states the security the quantity the price and whether you are in a buy or sell position the order is not triggered until the specific desired market price is achieved even then execution of the limit order is not guaranteed especially in highly volatile markets or regarding highly volatile securities with low liquidity | |
what is the difference between a limit order and a stop limit order | a limit order is an order requesting the purchase or sale of securities should a specific price be met a stop limit order builds one additional layer that requires a specific price be met that is different than the sale price for example a limit order to sell your security for 15 will likely execute when the market price reaches 15 alternatively a stop limit order can be placed to sell your security for 15 only if the share price has dropped from 20 to 16 | |
how long does a limit order last | the term of the limit order will depend on your specification and your broker s policy many brokers default limit orders to day only trades any unfilled orders at market close are canceled without execution other brokers may offer a specific number of days often in intervals of 30 i e 30 days 60 days or 90 days last some brokers offer limit orders that are considered good until filled the limit order will remain valid until it is filled or deliberately canceled by the trader | |
why did my limit order not get filled | a limit order may not get filled for a few reasons first your limit order will only trigger when market pricing meet your desired contract amount if a security is trading above your buy order or below your sell order it will likely not fill until there is price action on your security a limit order can only fill if a security has liquidity if the security does not have enough shares trading at the specific price you placed your order may not fill this is most common for larger orders placed on low volume securities due to volatility a stock on the day of its ipo may have difficulty filling due to rapid price fluctuation | |
what is a limit order book | a limit order book is a record of outstanding limit orders maintained by the security specialist who works at the exchange a limit order is a type of order to buy or sell a security at a specific price or better a buy limit order is an order to buy at a preset price or lower while a sell limit order is an order to sell a security at a pre specified price or higher | |
when a limit order for a security is entered it is kept on record by the security specialist as buy and sell limit orders for the security are given the specialist keeps a record of all of these orders in the order book the specialist executes the orders at or better than the given limit price when the market moves to the pre specified price | understanding a limit order bookthe specialist running the limit order book has the responsibility to guarantee that the top priority order is executed before other orders in the book and before other orders at an equal or worse price held or submitted by other traders on the floor such as floor brokers and market makers the specialist earns a profit off of the spread between the difference in prices between the bid and ask orders on their book as they execute the orders with the advancements in trading system technologies the process has shifted from a manual process to one that is largely automated tracking limit ordersin 2000 the securities and exchange commission sec began to create a centralized limit order book that keeps track of limit orders on exchanges electronically 1 this electronic order tracking system automatically matches for the execution of the best possible pair of orders in the system the best pair is made up of the highest bid and the lowest ask orders the bid is the price the specialist or exchange will sell a security or the price at which an investor can buy the security the ask or offer is the price at which the specialist or exchange will buy a security or the price at which the investor can sell the security | |
when a limit order is entered into a trading system and fielded by either a specialist working the book or an electronic database of orders it will stay on the books until it can be matched with a suitable trade and executed buy limit orders are placed with an upper price threshold the investor would say i don t want to pay more than x for this share sell limit orders are placed with a lower price threshold the investor would say i don t want to sell this share for less than x | limit order qualifiersa limit order may include qualifiers without qualifiers on an order the request will be valid only for the market day considered a day order and may expire without any purchase or with only a partial fulfillment of shares if an investor s order states buy 10 000 shares of xyz common 32 they have requested to buy 10 000 shares at 32 or a better price the qualifier for this order if the investor s strategy requires 10 000 to be filled at any time at the requested price or better it may be entered as buy 10 000 shares xyz 32 gtc a good til cancelled order instructs the market to acquire those shares until the order is canceled even if the purchase is completed 100 shares at a time and over several weeks the investor wants the order completed regardless of how long the market takes to fill the order another qualifier is the aon or all of none investors may not want to risk only partially completing the order so they use this qualifier to instruct the market to fill this order with all 10 000 shares as requested or buy none there are other types of order qualifiers that allow an investor to ensure the transaction is executed exactly in the manner that suits their particular investment objective and in each case define the limits the investor is putting on the market to make the trade special considerationsinvestors are guaranteed to get the price if the order is triggered after the market moves to the specified level however there is no guarantee that the limit order will be executed in other words the order can only be filled if the price hits the price level limit orders are helpful to investors because they help ensure that they don t pay more for a security than the pre set price initially established with the order | |
what is a limited common element | the term limited common element refers to an aspect of a condominium unit or complex that is considered to be the property of the community or homeowners association hoa rather than that of the tenant limited common elements may be found within or outside individual condo units although they are deemed common their use is limited to the occupant of the unit examples include balconies shared outdoor space such as patios and terraces and parking lots and garages understanding limited common elementslimited common elements are defined as any aspects of a shared condominium complex that are part of a unit but are not considered to be the sole property of the owner or tenant limited common elements may include things that are directly connected to individual condominiums such as outer doors windows and balconies they may also include amenities which service every community resident equally such as driveways garages elevators clubhouses swimming pools and boat slips essentially although these features may be used by individual owners and occupants they are ultimately owned by the community as a whole declaration documents lay out what classifies as limited common elements declaration documents are provided to unit owners when they purchase a condo they specify the aspects and amenities that are considered limited common elements as well as outline which parts of the property belong to the condominium owner the declaration also delineates the responsibilities of the unit owner regarding maintenance repair and replacement of limited common elements maintenance of limited common elements usually remains the responsibility of the hoa unless otherwise specified in the declaration much of this is paid for through the collection of monthly condominium fees from unit owners in cases where the declaration does not specify it is generally assumed that the responsibility of maintaining those elements remains with the community association as in all such cases it s important to get the advice of a legal authority when there is any doubt special considerationslaws and regulations that govern condominiums and similarly planned communities including the ways they regulate common elements vary from state to state although many states have adopted similar legislation there are some jurisdictions that do not allow for the implementation of such legislation the uniform condominium act uca was established in 1980 to create and govern condominium associations fourteen states have passed this act into law including alabama arizona kentucky maine minnesota missouri nebraska new mexico pennsylvania rhode island texas virginia washington and west virginia 1the uniform common interest ownership act ucioa was created in 1982 as a set of state wide regulations for managing condominiums planned communities and real estate cooperatives five states enacted these regulations in 1982 including alaska colorado minnesota nevada and west virginia revisions to the ucioa were adopted by connecticut delaware vermont and washington in subsequent years 1pennsylvania passed the uniform planned community act upca which governs the creation and management of planned communities 2 virginia passed the real estate cooperative act as a companion to the uca in order to govern the creation financing and management of real estate cooperatives 3limited common elements vs common elementsalthough they may be used by people who live in the complex amenities that are not found in individual units are called common elements these elements remain the sole responsibility of the condo corporation or the hoa whether that s repairing maintaining or replacing them in their entirety examples of common elements include pipes electrical systems heating and air conditioning systems walkways security systems lighting in common hallways lobbies garbage and recycling areas and others | |
what is a limited company lc | a limited company lc is a general form of incorporation that limits the amount of liability undertaken by the company s shareholders it refers to a legal structure that ensures that the liability of company members or subscribers is limited to their stake in the company by way of investments or commitments in a legal sense a limited company is a person the naming convention for this type of corporate structure is commonly used in the united kingdom where a firm s name is followed by the abbreviated ltd in the united states limited companies come in several forms including the limited liability corporation llc | |
how a limited company works | as noted in a limited company the assets and debts of the company are separate from those of the shareholders as a result should the company experience financial distress because of normal business activity the personal assets of shareholders will not be at risk of being seized by creditors ownership in the limited company can be easily transferred and many of these companies have been passed down through generations unlike a public company in which anyone can buy shares membership in a limited company is governed by a company s rules and law a limited company can be limited by shares or limited by guarantee when limited by shares a company is owned by one or more shareholders and managed by at least one director in a limited by guarantee arrangement a company is owned by one or more guarantors and managed by at least one director the primary benefit of a limited company is the separation of assets and income from the corporation and the owners and investors through limited liability this means that if a company goes bust shareholders can only lose as much as their original investment and no more creditors or other stakeholders cannot claim owners personal assets or income because of limited liability investors are more eager to risk capital since their losses are limited in that sense limited company benefitsfiling as a limited company comes with a number of benefits they include for the privilege limited companies in the u k must pay a variety of taxes such as a value added tax vat and capital gains tax and must contribute to national insurance limited companies in the u k receive favorable tax treatment once their income reaches a certain threshold the corporate tax rate is a flat rate of 19 1 by comparison unincorporated businesses such as sole proprietorships and traditional partnerships do not afford full limits on liability for owners because there is no legal distinction between the business and its owners if such a business were to become insolvent its owners would be responsible for its debts limited company variationslimited company structures are codified in many nations though the regulations governing them can differ widely from one nation to the next for example in the united kingdom there are private limited companies and public limited companies private limited companies are not permitted to offer shares to the public they are however the most popular structures for a small business public limited companies plcs may offer shares to the public to raise capital those shares may trade on a stock exchange once a total share value threshold is met at least gbp 50 000 2 such a structure is widely employed by larger companies in the united states a limited company is more commonly known as a corporation corp or as incorporated inc some states permit the use of ltd limited after a company name such a designation depends on filing the correct paperwork just adding the suffix to a company name does not provide any liability protection limited companies in the u s are required to file corporate taxes annually with regulators limited liability companies llcs and limited companies have different structures many countries differentiate between public and private limited companies for example in germany the aktiengesellschaft ag designation is for public limited companies that can sell shares to the public while gmbh is for private limited companies that cannot issue shares | |
what is a limited government | a limited government is one where legalized force is restricted through delegated and enumerated authorities countries with limited governments have fewer laws about what individuals and businesses can and cannot do in many countries a written constitution is used to spell out the powers and limitations of government power the opposite of a limited government is an interventionist or authoritarian government in reality most countries even those with otherwise high degrees of freedom and liberty operate with some amount of government control and intervention investopedia zoe hansenunderstanding a limited governmentthe theory of limited government can be traced back to the enlightenment philosophers of the 17th century but the idea itself is much older it is also associated with the free market and classical liberalism though politicians and economists differ on the exact limitations that a government should have in its basic form a limited government is one whose main function is the protection of people and their property and it levies just enough taxes to finance services related to these purposes according to this interpretation a limited government might tax the population to pay for police or national defense but it would not concern itself with the beliefs or moral behavior of its citizens another interpretation defines a limited government as one that exercises only the specifically named powers that its constitution assigns to it it can also be characterized by a separation of powers and a system of checks and balances for example the u s government is restricted to exercising the specifically named powers that the constitution assigns to it history of limited governmentslimited government in its modern conception originated out of the classical liberal tradition in europe this tradition emphasized the rights of the individual in contrast to the monarchies and theocratic governments that dominated europe at that time the magna carta drafted in the year 1215 is one of the earliest written descriptions of a limited government the document limited the reach of the english king s power by giving the country s nobility the rights that they could exercise over the throne however the document only protected a small part of what is today the united kingdom 1the united states constitution written in 1787 extended the idea of a limited government by separating the powers of state and federal governments it also segmented the federal government into three branches legislative judicial and executive this is intended to make it difficult for any single person or interest group to control the entirety of government power 2in addition the bill of rights the first 10 amendments to the u s constitution ratified in 1791 enumerates certain prohibitions that apply to the government these rights further limit the federal government by prohibiting certain uses of government power 3while limited government is frequently associated with the free market the terms are not interchangeable there have been many instances of authoritarian governments that were friendly to business interests limited governments and the economyin economic policy limited governments seek minimal interventions in trade or commercial activity they are often associated with concepts such as laissez faire economics as first delineated in adam smith s 1776 book entitled an inquiry into the nature and causes of the wealth of nations in this context the most extreme sort of limited government would be one that lets supply and demand drive the economy the government would not intervene to set prices or influence business activity proponents of this view believe that limited government can facilitate economic growth and prosperity by minimizing restrictions on commercial activity this view later associated with the austrian school of economics holds that government interventions in the economy can distort markets and reduce competition resulting in shortages or high prices critics of this view believe that the government has an obligation to intervene in the economy either to support certain industries or reduce wealth inequality in contemporary economics this view is frequently associated with john maynard keynes who argued that government spending can actually stimulate economic activity 4problems with limited governmentswhile many contemporary political thinkers agree that government powers should be constrained there is considerable disagreement on the exact limitations that government power should have many critics argue that government has the ability or obligation to solve collective action problems that cannot be solved by market forces alone a common example is the environmental regulations that punish businesses for polluting the air or water although individuals can pursue polluting industries through the court system this solution is out of reach for many potential victims particularly those who are excluded from the legal system instead the environmental protection agency is expected to penalize these industries on behalf of the public another is the protection of key industries many governments use subsidies or tariffs to support domestic agriculture or manufacturing even though prices would be cheaper on the world market although protectionism sometimes works on behalf of political interest groups it can also support industries with a strategic or security value according to this reasoning the cost of supporting these industries is lower than the cost of not having them particularly in the event of a major crisis such as a war or famine limited government vs small governmentit is also possible for a government to be too small in colloquial usage the phrase limited government is often used interchangeably with small government the idea that governments should impose as few taxes as possible and employ a minimum number of administrators while these ideas are closely connected a small government may not necessarily have the resources to protect public interests for example consider a hypothetical country whose taxes are not high enough to pay administrators a competitive salary in order to make a living some administrators might resort to graft or bribery thereby imposing an even greater economic burden than that of taxation in fact research by the world bank confirms that public sector salaries play a large part in anti corruption measures based on country data the bank concluded that increasing wages could reduce corruption in certain situations when paired with appropriate policies 5the phrase limited government appears to have originated during the reign of james vi i king of scotland england and ireland examples of limited governmentssince 1996 the fraser institute a canadian research and educational organization has produced annual reports ranking countries in terms of how much their policies and institutions are supportive of economic freedom it measures limited government by the size of government top marginal tax rates public spending the legal system protection of property rights judicial independence sound money inflation freedom to trade internationally tariffs trade barriers and regulation of credit markets labor markets and businesses the following rankings come from the fraser institute s 2023 economic freedom of the world index report fraser index which analyzes 165 countries and territories the 2023 rankings are assessed based on 2021 information 6technically an autonomous region of china hong kong was nevertheless ranked second in the 2023 fraser index hong kong has always been in the top spot in the fraser index due to favorable taxes freedom to trade internationally and favorable labor and business market regulations 78hong kong s drop from first to second has to do with the new security law imposed by china in 2021 the government s new laws imposed new and significant barriers to entry limits on the employment of foreign labor and increases in the cost of doing business the decline in hong kong has been larger than the world s average decline 9although it was ranked 71 in terms of economic freedom the fraser index ranked honduras second in size of government just behind neighboring guatemala honduras had a high score for transfers and subsidies government investment and foreign currency bank accounts balancing out low scores for its legal system 10according to the fraser rankings new zealand was the fourth freest economy in the world though it ranked 108 in terms of size of government the country earned high marks for its legal system and property rights sound money and freedom to trade internationally however the country scored lower in size of government largely due to government spending and subsidies 11 | |
how is federalism connected to the idea of limited government | federalism refers to a political system that delegates certain powers to local or provincial bodies in a federalist system local governments may have their own legislature courts tax authority and other functions of government in some cases they may also have the power to secede from the central government | |
how does the constitution reflect the principle of limited government | in the united states the constitution divides the government into three separate branches with separate powers and constraints all three must work together to enact new policies and laws at the time the constitution was written it was considered unlikely that any one person or faction could control all three branches therefore this separation was considered a way of preventing government overreach who came up with the idea of limited government while the concept of limited government dates back to the magna carta the idea was further developed by enlightenment thinkers in the 17th and 18th centuries the idea that government power requires the consent of the governed originates from john locke 12the concept of separating the government into three branches is attributed to baron de montesquieu and the idea that the government should avoid intervening in commerce is frequently attributed to adam smith many of these ideas were later integrated into the american and french revolutions 13 | |
which countries have the highest degree of limited government | according to the annual human freedom index report for 2023 co published by the cato institute and the fraser institute the highest scoring country in terms of limited government was switzerland the top 10 included the bottom linethe concept of limited government holds that there should be legal constraints on the power of political authorities especially with respect to individual rights the concept is also important in economic affairs where government intervention may have the effect of disrupting markets and commerce | |
what is limited liability | limited liability is a type of legal structure for an organization where a corporate loss will not exceed the amount invested in a partnership or limited liability company llc in other words investors and owners private assets are not at risk if the company fails in germany it s known as gesellschaft mit beschr nkter haftung gmbh the limited liability feature is one of the biggest advantages of investing in publicly listed companies while a shareholder can participate wholly in the growth of a company their liability is restricted to the amount of the investment in the company even if it subsequently goes bankrupt and has remaining debt obligations | |
when either an individual or a company functions with limited liability this means that assets attributed to the associated individuals cannot be seized in an effort to repay debt obligations attributed to the company funds that were directly invested with the company such as with the purchase of company stock are considered assets of the company in question and can be seized in the event of insolvency | any other assets deemed to be in the company s possession such as real estate equipment and machinery investments made in the name of the institution and any goods that have been produced but have not been sold are also subject to seizure and liquidation without limited liability as a legal precedent many investors would be reluctant to acquire equity ownership in firms and entrepreneurs would be wary of undertaking a new venture this is because creditors and other stakeholders could claim the investors and owners assets if the company loses more money than it has limited liability prevents that from occurring so the most that can be lost is the amount invested with any personal assets held as off limits limited liability partnershipsthe actual details of a limited liability partnership depend on where it is created in general however your personal assets as a partner will be protected from legal action basically the liability is limited in the sense that you will lose assets in the partnership but not those assets outside of it i e your personal assets the partnership is the first target for any lawsuit although a specific partner could be liable if they personally did something wrong another advantage of an llp is the ability to bring partners in and let partners out because a partnership agreement exists for an llp partners can be added or retired as outlined by the agreement this comes in handy as the llp can always add partners who bring existing business with them usually the decision to add new partners requires approval from all the existing partners overall it is the flexibility of an llp for a certain type of professional that makes it a superior option to many other corporate entities the llp itself is a flow through entity for tax purposes which is also an option for llcs with flow through entities the partners receive untaxed profits and must pay the taxes themselves both llcs and llps are usually preferable to corporations which are impacted by double taxation issues double taxation occurs when the corporation must pay corporate income taxes and then individuals must pay taxes again on their personal income from the company investopedia jake shilimited liability in incorporated businessesin the context of a private company becoming incorporated can provide its owners with limited liability since an incorporated company is treated as a separate and independent legal entity limited liability is especially desirable when dealing in industries that can be subject to massive losses such as insurance an llc is a corporate structure in the united states whereby the owners are not personally liable for the company s debts or liabilities limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship while the limited liability feature is similar to that of a corporation the availability of flow through taxation to the members of an llc is a feature of partnerships the primary difference between a partnership and an llc is that an llc separates the business assets of the company from the personal assets of the owners insulating the owners from the llc s debts and liabilities as an example consider the misfortune that befell numerous lloyd s of london names who are private individuals that agree to take on unlimited liabilities related to insurance risk in return for pocketing profits from insurance premiums in the late 1990s hundreds of these investors had to declare bankruptcy in the face of catastrophic losses incurred on claims related to asbestosis contrast this with the losses incurred by shareholders in some of the biggest public companies that went bankrupt such as enron and lehman brothers although shareholders in these companies lost all of their investments in them they were not held liable for the hundreds of billions of dollars owed by these companies to their creditors subsequent to their bankruptcies | |
what business structures feature limited liability | there are several company structures that feature limited liability including a limited liability company llc an s corporation and a c corporation partnerships may have limited liability partners but at least one partner must have unlimited liability 1 | |
what is unlimited liability | while limited liability separates and protects personal assets from business assets some countries allow the creation of unlimited liability corporations which means that the shareholder or partner assumes all liability for the company s success if the company becomes insolvent the unlimited liability partner would be responsible for repaying all debts to creditors | |
does an llc require more than one owner | no llcs may operate the same as a sole proprietorship with the benefit of asset protection in the event of a business catastrophe a single person may organize as an llc or they may have partners in the business | |
what is a limited liability company llc | a limited liability company llc is a business structure in the u s that protects the assets of its owners from lawsuits and creditors concerned with the company s business debts limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship while the limited liability feature is similar to that of a corporation the availability of pass through taxation to the members of an llc is a feature of a partnership rather than an llc understanding a limited liability company llc limited liability companies are permitted under state statutes and the regulations governing them vary from state to state generally llc owners are called members many states don t restrict ownership which means that anyone can be a member that includes individuals corporations foreigners foreign entities and even other llcs some entities such as banks and insurance companies are prohibited from forming llcs 1an llc is a formal business arrangement that requires articles of organization to be filed with the state an llc is easier to set up than a corporation and provides more flexibility and protection for its investors llcs may elect not to pay federal taxes directly instead their profits and losses can be reported on the personal tax returns of the owners or the llc may choose to be classified as a corporation for tax purposes 2if fraud is detected or if an llc fails to meet its legal and reporting requirements creditors may be able to go after the members 3llcs should not be confused with an unlimited liability corporation ulc which is a corporate structure allowed in certain countries and in some canadian provinces the wages paid to llc members are deemed operating expenses and are deducted from the company s revenue forming an llc1 although the requirements for llcs vary by state there are generally some commonalities the very first thing owners or members must do is to choose a name 2 then articles of organization can be completed and filed with the state to establish the llc this document can provide basic information about the llc the names and addresses of the llc members the name of the llc s registered agent and the statement of purpose for the business the articles of organization are filed with the state in which the llc is formed along with a fee paid directly to the state paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number ein 43 an llc operating agreement will lay out the operational and financial decision making roles and duties of members it will state just how profits are to be distributed it is the contract between all members of the llc and provides all details about the llc s structure and important business functions normally this internal document remains with the llc and isn t distributed externally a registered agent is a company that an llc hires to manage the various legal and government correspondence sent to the llc so that it can be sure to comply with state regulations benefits of an llcdrawbacks of an llcan llc may not be a suitable option if the founder s ultimate objective is to launch a publicly traded company llc vs partnershipthe primary difference between a partnership and an llc is that an llc separates the business assets of the company from the personal assets of the owners insulating the owners from the llc s debts and liabilities both llcs and partnerships are allowed to pass through their profits along with the responsibility for paying the taxes on them to their owners 2 their losses can be used to offset other income but only up to the amount invested by a member if the llc has organized as a partnership it must file form 1065 if members have elected to be treated as a corporation form 1120 is filed 5with an llc a business continuation agreement can be used to ensure the smooth transfer of interests when one of the owners leaves or dies without such an agreement in place the remaining partners must dissolve the llc and create a new one | |
what is a limited liability company | a limited liability company commonly referred to as an llc is a type of business structure commonly used in the u s llcs can be seen as a hybrid structure that combines features of both a corporation and a partnership like a corporation llcs provide their owners with limited liability in the event the business fails but like a partnership llcs pass their profits to members so that they are taxed as part of each member s personal income 2 | |
what are llcs used for | the llc has two main advantages | |
what are some examples of llcs | llcs are more common than many realize alphabet the parent company of google is an llc as are pepsico inc exxon mobil corp and johnson johnson 6llcs can include sole proprietorship llcs family llcs and member managed llcs many physicians groups are registered as llcs this helps protect the individual doctors from personal liability for medical malpractice awards | |
are limited liability companies taxed differently than corporations | yes in the case of a corporation profits are first taxed at the corporate level and then taxed a second time once those profits are distributed to the individual shareholders 7 this double taxation is decried by many businesses and investors limited liability companies on the other hand allow the profits to be passed directly to the investors so that they are taxed only once as part of the investors personal income 2the bottom linellcs are important legal structures for forming a business limited liability means that the assets and debts of the business remain separate from the personal assets and debts of the llc s owners in most cases if an llc goes bankrupt creditors can only go after the assets of the business and not of the owners llcs also have several other beneficial features including simplified taxation and a relatively straightforward formation process this is part of the reason why llcs are the most common type of business in the u s | |
what is a limited partner | a limited partner invests money in exchange for shares in a partnership but has restricted voting power on company business and no day to day involvement in the business a limited partner s liability for the firm s debts cannot exceed the amount that they have invested in the company limited partners are often called silent partners understanding limited partnersa limited partnership lp by definition has at least one general partner and at least one limited partner the general partner or partners manage the business from day to day 1although state laws vary a limited partner doesn t generally have the full voting power on the company business of a general partner the internal revenue service irs considers the limited partner s income from the business to be passive income a limited partner who participates in a partnership for more than 500 hours in a year may be viewed as a general partner 2some states allow limited partners to vote on issues affecting the basic structure or the continued existence of the partnership those issues include removing general partners terminating the partnership amending the partnership agreement or selling most or all of the company s assets 1a limited partner may become personally liable only if they are proved to have assumed an active role in the business general partner vs limited partnera general partner typically is compensated for controlling the company s daily operations and making day to day decisions as the business decision maker the general partner can be held personally liable for any business debts 3a limited partner has purchased shares in the partnership as an investment but is not involved in its day to day business limited partners cannot incur obligations on behalf of the partnership participate in daily operations or manage the operation because limited partners do not manage the business they are not personally liable for the partnership s debts a creditor may sue for repayment of the partnership s debt from the general partner s personal assets 4a limited partner may become personally liable only if they are proved to have assumed an active role in the business taking on the duties of a general partner a limited partner s loss from the company s operations may not exceed the amount of the individual s investment 4investors in private equity funds are called limited partners tax treatment for limited partnerslimited partnerships like general partnerships are pass through or flow through entities this means that all partners are responsible for taxes on their share of the partnership income rather than the partnership itself limited partners do not pay self employment taxes because they are not active in the business the irs does not consider limited partners income as earned income the income received is passive income the tax reform act of 1986 allows limited partners to offset reported losses from passive income 2 | |
what is the role of a limited partner | a limited partner is an investor who does not make decisions for either a company or assets in a partnership limited partners are also often referred to as silent partners | |
what are the advantages of being a limited partner | limited partners can invest while keeping their liability limited liability is limited to the amount that a limited partner has invested the limited liability of a limited partner is ideal for an investor who wants to own a stake in a business without the risk of being exposed to unlimited liability | |
how are limited partners taxed | because limited partners are investors who do not take an active role in the business the irs does not consider any income they receive from the limited partnership as earned income instead it is viewed as passive income which is not subject to self employment taxes the bottom linea limited partner often called a silent partner is an investor unlike general partners in a limited partnership limited partners don t make business decisions because limited partners are not active in the business the irs doesn t view income from the partnership as earned income that means limited partners aren t subject to self employment taxes | |
what is a limited partnership lp | a limited partnership lp is a business owned by two or more parties these must include at least one general partner who runs the business and has unlimited liability for any debts the limited partners have liability only up to the amount of their investment a limited partnership is different than a limited liability partnership llp the limited partnership business structure is often used as a vehicle for individuals who pool their money to invest in real estate or other assets madelyn goodnight investopedia | |
how a limited partnership lp works | a limited partnership is required to have at least one general partner and one or more limited partners 1general partners have full management control of the business and unlimited financial liability for their financial obligations limited partners have little or no involvement in management and their liability is limited to the amount of their investment in the lp hedge funds and real estate investment funds are often set up as lps to protect their investors from the financial fallout of a failed venture partnership agreements should be created to outline the specific responsibilities and rights of both general and limited partners types of partnershipsgenerally any partnership is a business owned by two or more individuals there are three forms of partnerships limited partnership general partnership and limited liability partnership in all forms of partnerships each partner contributes resources such as property money skills or labor and in return shares in the profits and losses of the business at least one partner makes decisions regarding the day to day affairs of the business this partner is often known as the general partner most limited partnerships are formed by investors who are pooling their money to invest in assets such as real estate lps differ from other partnerships in that the partners except for general partners have limited liability meaning they are not on the hook for business debts that exceed their initial investment general partners are responsible for the daily management of the limited partnership and are liable for the company s financial obligations including debts and litigation all other contributors are known as limited or silent partners they provide capital but cannot make managerial decisions and are not responsible for any debts beyond their initial investment limited partners can become personally liable if they take a more active role in the lp a general partnership gp is a company structure that requires all of its partners to share in the profits managerial responsibilities and liability for debts of the business the partners share the profits and responsibilities equally unless the legal partnership agreement states otherwise 2a joint venture is a type of general partnership that is formed to complete a specific project and will be dissolved with its completion all partners have an equal right to control the business and share in any profits or losses they also have a fiduciary responsibility to act in the best interests of both other members and the venture 3a limited liability partnership llp is a type of company that gives all partners limited financial liability all partners can also participate in management decisions 4this is unlike a limited partnership in which at least one general partner must have unlimited liability and limited partners cannot be part of management llp partners are not responsible for the misconduct or negligence of other partners 4llps are most often used as business structures for groups of professionals such as lawyers or accountants | |
how to form a limited partnership | almost all u s states govern the formation of limited partnerships under the uniform limited partnership act which was introduced in 1916 and has since been amended many times the majority of the united states 49 states and the district of columbia have adopted these provisions with louisiana as the sole exception 5to form a limited partnership the partners must register the venture in the applicable state typically through the office of the local secretary of state the business permits and licenses that are required vary according to locality state or industry the u s small business administration sba lists all local state and federal permits and licenses that are necessary to start a business 6in addition to external filings the partners of a limited partnership must draft a partnership agreement this is an internal document that defines how the business will be operated the agreement outlines the rights responsibilities and expectations of each partner the document is not filed with a government entity the partnership agreement should identify two key financial aspects of the company advantages and disadvantages of an lpthe key advantage to an lp for its limited partners is the protection from personal financial liability beyond the amount of their investment the general partners are willing to take the biggest risks in order to raise capital for their investments lps are pass through entities for all partners meaning the entity files a form 1065 the partners receive schedule k 1 forms to report their portion of the income or loss on their own personal tax returns 7 limited partners don t have to pay self employment taxes as they are not active members of the business another advantage is the ease of creating and maintaining a limited partnership because the structure of the partnership is less formal than other partnerships they can be more straightforward to set up they are also straightforward to maintain partners do not have to participate in any sort of annual meeting on the downside lps require that the general partner have unlimited liability they are responsible for all management decisions and are liable for any debts or mishandling of the business 4limited partners must stay out of business operations if they want to maintain their liability protection if their role is deemed non passive they lose personal liability protection the structure of a limited partnership also comes with some downsides they can be more difficult to transfer ownership of than a business such as an llc and there is less flexibility for changing management roles within the business personal liability protection for limited partnerspass through entity for taxationease of creation and reportingno self employment taxes for limited partnersgeneral partners have unlimited personal liabilitylimited partners barred from management decisionsdifficulty transferring ownershipless flexible for changing management roleslp vs llclimited liability companies llcs and limited partnerships share several similarities both entities have a certain degree of freedom in how they define the role of the entity s members and the entity s structure this includes having control over voting financial terms or fiduciary responsibilities of each member both types of entities also incur pass through tax treatment this means each investor is subject to reporting their share of the entity s profit on their personal tax returns neither type of company is subject to federal income tax 7there are also differences between the two types of legal entities however starting with the corporate structure limited partnerships contain general partners and limited partners while a limited liability company may have as many members as it wants in general all members of an llc usually have the right to manage the business while limited partners of an lp cannot be active participants 4another key difference is in liability general partners of an lp have unlimited personal liability meaning they may be held liable for any debts and obligations of the company limited partners are often not liable for partnership obligations llcs on the other hand often provide corporation like protection for members in which members are not held directly liable for the company s debts 4finally llcs have a bit more flexibility regarding how they are taxed llcs can elect to be taxed as a c corporation an s corporation or a disregarded entity 8 both an llc and lp s default tax status is to be taxed as a partnership composed of general partners and limited partnerslimited partners not active in the daily managementgeneral partners can have personal liabilitytaxed as partnershipscan have many owners all referred to as membersall members can have the right to participate in managementno personal liabilitymay be taxed as a partnership c corp s corp or disregarded entitylimited partnership and taxeslimited partnerships are treated similarly to general partnerships in regard to taxes limited partnerships are treated as pass through entities and file form 1065 as an information return the limited partnership also provides a schedule k 1 to each partner so that their share of business income and losses can be reported on the partner s individual tax return 9if the limited partnership were to incur a loss each partner could deduct this loss on their personal returns up to the amount of their investment in the company partners can also carry losses to future years if the loss is greater than their investment to date amount income or losses from a limited partnership are called passive gains or losses this is because each partner is not actively participating in the business this is especially important for tax reasons as passive activity can only be offset by other passive income passive losses can only be used to offset passive gains this also plays a key part in self employment taxes limited partners do not pay self employment tax on most payments as they are not active participants in the business general partners usually have to pay self employment taxes 10 | |
what type of business is a limited partnership | businesses that form a limited partnership generally own or operate specific assets such as the property owned by a real estate investment partnership a general partner has control over the assets manages the business and can be held personally liable for its debts all limited partners are investors who have no role in management and are not responsible for debts beyond the amount of their investment | |
what is the difference between an lp and an llp | an lp limited partnership and an llp limited liability partnership have a similar structure however lps have general partners and limited partners while llps have no general partners all partners in an llp have limited liability 4 | |
what is limited partnership taxation | limited partnerships are taxed as pass through entities meaning each partner receives a schedule k 1 to include on their personal tax returns 7 | |
what are the benefits of a limited partnership | limited partnerships are ideal entities for raising capital for a particular investment or set of assets they allow most partners to invest while keeping their liability limited the bottom linelimited partnerships are generally used by hedge funds and investment partnerships as they offer the ability to raise capital without giving up control limited partners invest in an lp and have little or no control over the management of the entity but their liability is limited to their personal investment meanwhile general partners manage and run the lp but their liability is unlimited | |
what is a limited partnership unit lpu | a limited partnership unit or lpu is an ownership unit in a publicly traded limited partnership or master limited partnership mlp this trust gives the unit holder a stake in the income generated by the partnership company a limited partnership unit is also referred to as a master limited partnership unit or a limited partner unit | |
how a limited partnership unit works | a limited partnership unit is a share certificate representing one unit of ownership in a master limited partnership mlp thus an mlp is nothing more than a limited partnership that is publicly traded on an exchange an mlp often distributes all available cash such as dividends from operations to unit holders after the deduction of maintenance capital partnership units are beneficial to investors because the mlp allows the company s cash distributions to circumvent the double taxation that would normally be imposed which generally means greater distributions for partnership unitholders in an mlp the cash distributions of the company are taxed only at the unit holder level and not at a corporate level a limited partnership is a flow through entity and is thus not a legal taxpaying entity an investor that purchases an interest in a limited partnership shares the profits or losses of the business pro rata with other partners and owners for tax purposes an owner or investor includes a percentage of the business gains or losses when calculating his or her own taxable income partners are then required to report this income or loss regardless of actual distributions from the partnership special considerations liabilitythe liability with respect to the partnership s debts is limited as each partner or investor can only lose up to his or her original investment limited partnerships usually must mail an irs schedule k 1 to each of their unit holders every year although partnerships make quarterly cash distributions to lp unitholders these distributions are not guaranteed still every unitholder is responsible for the taxes on his or her proportionate share of income even if the partnership does not make a distribution benefits of limited partnership unitsin addition to the avoidance of double taxation another benefit of investing in lp units is that because the units are publicly traded there is much more liquidity for investors compared to a traditional partnership in most cases these limited partnership unit investments are eligible as ira and rrsp investments lp units are concentrated in the real estate sector or in the commodities and natural resource sectors such as oil natural gas timber and petroleum the at risk rules apply to limited partners these are special rules that prevent investors from writing off more than the amount they invested in limited partnership units in effect the at risk rules limit the amount of loss the limited partners can claim to the amount of actual at risk capital if an investor s adjusted cost base acb the amount paid for the units of their lp units is negative they are deemed to have made a capital gain and their adjusted cost base will be reset to zero if their acb in a future year is positive they may choose to recognize a capital loss on the positive acb and apply this loss against the previous capital gain to recover tax paid on that amount | |
what is limited power of attorney | limited power of attorney lpoa is an authorization that permits a portfolio manager to perform specific functions on behalf of the account owner in general the lpoa allows the manager to execute an agreed upon investment strategy and take care of routine related business without contacting the account holder before signing an lpoa the client should be aware of the specific functions they have delegated to the portfolio manager as the client remains liable for the decisions understanding limited power of attorneylpoa authorizations have become more common in recent years as more investors choose boutique money management firms and registered investment advisors rias over traditional brokerage firms a limited power of attorney as opposed to a general power of attorney restricts the authority of the designated individual to a specific sphere in this case the portfolio manager is empowered to execute an investment strategy as agreed upon with the account holder an lpoa gives the portfolio manager the authority to buy and sell assets pay fees and handle various necessary forms certain critical account functions still can be made only by the account holder including cash withdrawals and a change of beneficiary a client can clearly state which other powers they may wish to retain at the time the account is set up there are a couple of variations on the limited power of attorney that may be used in special circumstances clients typically complete a power of attorney poa form when they open an account with a portfolio manager most forms give clients the option to choose between an lpoa or a full power of attorney a limited power of attorney restricts the authorization to a specific sphere such as investment management the client must designate an attorney in fact who is usually the portfolio manager other portfolio managers who may make investment decisions on behalf of the client must also have their details provided on the form once completed both the client and the attorney or attorneys in fact must sign the form a client who is uncertain or uncomfortable about what functions they are authorizing may want to get an attorney to review the poa form before signing it | |
what is limited power of attorney | limited power of attorney lpoa is an authorization that permits a portfolio manager to perform specific functions on behalf of the account owner in general the lpoa allows the manager to execute an agreed upon investment strategy and take care of routine related business without contacting the account holder before signing an lpoa the client should be aware of the specific functions they have delegated to the portfolio manager as the client remains liable for the decisions understanding limited power of attorneylpoa authorizations have become more common in recent years as more investors choose boutique money management firms and registered investment advisors rias over traditional brokerage firms a limited power of attorney as opposed to a general power of attorney restricts the authority of the designated individual to a specific sphere in this case the portfolio manager is empowered to execute an investment strategy as agreed upon with the account holder an lpoa gives the portfolio manager the authority to buy and sell assets pay fees and handle various necessary forms certain critical account functions still can be made only by the account holder including cash withdrawals and a change of beneficiary a client can clearly state which other powers they may wish to retain at the time the account is set up there are a couple of variations on the limited power of attorney that may be used in special circumstances clients typically complete a power of attorney poa form when they open an account with a portfolio manager most forms give clients the option to choose between an lpoa or a full power of attorney a limited power of attorney restricts the authorization to a specific sphere such as investment management the client must designate an attorney in fact who is usually the portfolio manager other portfolio managers who may make investment decisions on behalf of the client must also have their details provided on the form once completed both the client and the attorney or attorneys in fact must sign the form a client who is uncertain or uncomfortable about what functions they are authorizing may want to get an attorney to review the poa form before signing it | |
a line chart graphically represents an asset s price over time by connecting a series of data points with a line this is the most basic type of chart used in finance and it typically only depicts a security s closing prices line charts can be used for any time frame but most often have day to day price changes 1 | understanding line chartsa line chart provides traders with a visualization of the price of a security over a given period of time because line charts usually only use closing prices they cut the noise from less critical times in the trading day such as the open high and low prices line charts are popular with investors and traders because closing prices are a common snapshot of a security s activity 1other popular styles of charts include bar charts candlestick charts and point and figure charts traders can juxtapose line charts with others to help see a fuller technical picture 2types of line chartsline charts are versatile in finance and investing and there are different types to suit your analytical needs simple line charts multiple line charts and compound line charts these charts present data in a clear concise manner they help identify trends make comparisons and understand changes in different economic and financial metrics simple line charts are the most basic form representing data points connected by a single line they typically show the ending periods of a security or financial and economic data over a given period ideally simple line charts are used to track the price trend of a single asset over time this helps identify general trends and patterns in price changes for example you could use one to monitor the trend of the closing price of a stock over a year to assess its performance these charts involve plotting several lines on the same chart each representing different data this is useful for simultaneously comparing the performance of several securities indexes and other financial and economic metrics comparing the performance of various stocks sectors or markets to identify the relative strengths or weaknesses is an example of using multiple line charts compound line charts also known as stacked line charts show the cumulative effect of several data sets stacked on top of each other 2 they are used to understand the combined effect of multiple factors on a single outcome or to analyze the composition of a metric over time demonstrating how different asset classes contribute to the overall performance of a portfolio over time is a good use of these charts | |
what is a line chart used for | a line chart serves several key purposes in finance and investing making it essential for analysts traders and investors here are some of its best uses 2while versatile and widely used in finance and investing line charts are not optimal for every analytical scenario here are some situations when it s best not to use line charts 2recognizing when a line chart is inadequate and opting for more sophisticated tools or charts is crucial for accurate analysis and decision making for instance trading and investing platforms offer a range of chart types and analytical tools that cater to different needs in financial analysis in addition financial modeling software ordinarily includes various chart options to suit different types of data analysis pros and cons of line chartstraders can be overwhelmed with too much information when analyzing charts the trading phrase paralysis by analysis describes this phenomenon using charts that show too much price information or too many indicators can give confusing signals and complicate trading decisions however a line chart helps traders pinpoint key support and resistance levels trends and recognizable chart patterns for example the line chart below makes it easy to find major support and resistance levels between 2 10 and 2 70 before the price drops below support line charts are also ideal for novice traders because of their simplicity they help to teach basic chart reading skills before advanced techniques such as reading japanese candlestick patterns or learning point and figure charts volume and moving averages can easily be put into a line chart line charts can be constructed manually or by using apps and software such as microsoft excel or google sheets making it quicker and more accurate however line charts may not have enough price information for some traders to monitor their trading strategies some strategies require prices derived from the open high and low also traders needing more information than the close to test their trading strategy will have to find other charts candlestick charts which contain an asset s daily open close high and low prices in the same graph may prove more useful 3clarity and simplicity line charts offer a clear straightforward view of price moves over time easy to use line charts are easy to read and interpret even for those new to finance and investments focus on closing prices by zeroing in on closing prices line charts filter out intraperiod volatility which could be beneficial for long term investment strategies comparative analysis line charts are useful for comparing several securities or indexes over time since the simplicity of the lines lets you make easier comparisons without clutter lack of detailed information line charts only show end of period prices omitting important data such as high low and opening prices which are frequently critical for investment strategies oversimplification the simplicity can also be a drawback as it may lead to overlooking price moves and volatility which are important for traders and investors risk of misinterpretation the focus on closing prices might give a misleading picture in markets where intraperiod changes are significant | |
what are the parts of a line chart | a line chart as commonly used in finance and investment analysis consists of several components that collectively present data in a clear interpretable manner these components include data points the line that connects these data points the vertical and horizontal axes the scale of the axes labels for the data the title of the chart and the key or legend there might also be grid lines for the line chart | |
what is an example of a line chart | a line chart is used to show the change in information over time the horizontal axis is usually a time scale such as minutes hours days months or years for example you could create a line chart showing a store s daily earnings for five days the horizontal axis would include the days of the week while the vertical axis would show the daily earnings | |
how do i make a line chart in excel | in excel line charts are appropriate if you have text labels dates or a few numeric labels on the horizontal axis x axis here are the steps to create a line graph in excel if you are using numeric labels empty cell a1 before you make the line chart | |
what is a line graph | a line graph also known as a line plot or a line chart is a graph that uses lines to connect individual data points a line graph displays quantitative values over a specified time interval in finance line graphs are commonly used to depict the historical price action of an asset or security line graphs can be compared with other visualizations of data including bar charts pie charts and in trading candlestick charts among others understanding line graphsline graphs use data point markers which are connected by straight lines these data points connected by straight lines aid in visualization while line graphs are used across many different fields for different purposes they are especially helpful when it is necessary to create a graphical depiction of changes in values over time line graphs are often used in finance to create visual representations of values over time including changes in the prices of securities company revenue sheets and histories of major stock indexes they are also useful for comparing different securities in investing specifically with respect to the field of technical analysis line graphs are used by investors to visualize trends which can greatly aid them in their analyses there are some limitations to line graphs for example line graphs often lose clarity when there are too many data points it is also easy to manipulate them visually in order to achieve certain effects for example the apparent degree of change can be visually manipulated by adjusting the range of data points on the axes line graphs can be constructed manually or by using software such as microsoft excel the latter greatly improves the speed and accuracy of the end product constructing a line graphline graphs consist of two axes x axis horizontal and y axis vertical each axis represents a different data type and the points at which they intersect is 0 0 the x axis is the independent axis because its values are not dependent on anything measured the y axis is the dependent axis because its values depend on the x axis s values each axis should be labeled according to the data measured along that axis then each axis should be divided in appropriate increments e g day one day two etc for example if measuring the changes in a stock s prices for the previous two weeks the x axis would represent the time measured trading days within the period and the y axis would represent stock prices | |
when using line graphs to track the price of a stock the data point most commonly used is the closing price of the stock | for example assume that on day one of trading a given stock s price was 30 resulting in a data point at 1 30 on day two of trading the stock s price was 35 resulting in a data point at 2 35 each data point is plotted and connected by a line that visually shows the changes in the values over time if the value of the stock increased daily the line would slope upward and to the right conversely if the price of the stock was steadily decreasing then the line would slope downward and to the right types of line graphsthere are three main types of line graphs although each type is fundamentally rooted in the same principles each has its own unique situation where it is best to implement and use a simple line graph is the most basic type of line graph in this graph only one dependent variable is tracked so there is only a single line connecting all data points on the graph all points on the graph relate to the same item and the only purpose of the graph is to track the changes of that variable over time this graph cannot be used to compare the variable to another variable because only variable is charted in the example below the x axis is time and the y axis is the year over year change in price for all consumer goods in the united states this graph of the consumer price index shows the annual rate of inflation and since it is analyzing just one set of data all items there is only one line bureau of labor statisticsin a multiple line graph more than one dependent variable is charted on the graph and compared over a single independent variable often time different dependent variables are often given different colored lines to distinguish between each data set each line relates to only the points in its given data set lines do not cross between dependent variables for example the line graph below shows the consumer price index again however this graph shows the change in price for three different categories medical care red commodities green and shelter blue in this graph we can see the growth in price for commodities was higher than the other two categories in july 2022 however shelter or medical expenses were typically the groups that experienced higher inflation over the past decade 1bureau of labor statisticsa compound line graph uses multiple variables similar to a multiple line graph however the variables are often stacked on top of each other to show the total quantity across all variables this not only informs users of the relationship between each of the variables but it informs of how the total changes as well in the example below from the environmental protection agency epa there are five dependent variables that range from abnormally dry land areas to exceptional drought areas the most extreme drought data was graphed first and any empty space under that line graph was shaded dark red then subsequent sets of data were plotted after with the empty area below each of those lines shaded their respective colors in total this shows the relationship between drought descriptions as well as the total percent of u s land area in these categories by year epaparts of a line graphline graphs may vary depending optional features or formatting the highest quality easiest to understand line graphs have the following characteristics line graphs may have a title above the graph to succinctly explain what the graph is depicting unless you provide a user with written context the user will often rely on the title to better understand what data is being pulled in the title may specifically call out a timeframe or limits to the data i e an appropriate title for the compound line graph could be level of u s dry land by year 2000 2015 the legend explains what each dependent variable is and how to distinguish different sets of data in the example above each dependent variable is marked with its own color the box that explains what each color means is the legend each item of data on a line graph is a reference to a different source that ties the dependent variable to an independent variable this is the information on your graph it is the item that creates the dots that get connected to form the lines on your chart in some examples as seen above there may be multiple sets of data combined into a single graph to ensure data is protected and accurate companies may have specific data integrity analyst or similar positions to monitor database activity the x axis is the set of information that runs along the horizontal flat portion at the bottom of the line graph in most line graphs the x axis will be related to time whether it is the different months in a year or the number of weeks that have passed since a product launch the y axis is the set of information that runs along the vertical left side of the graph some iterations of line graphs have this set of information on the right in any case these numbers count the items being measured the graph may start at zero though there are instances where it makes more sense to start at a higher number last we have the line the line connects all data points within a single dependent variable this line s movement shows the increase and decrease of information across time it can also easily be compared against other lines as long as all data sets are being measured over similar periods of time though overly simplified this line can communicate to management what actions should be taken to improve operations or strategic planning want to display multiple sets of data but one set of information is more suitable as a bar chart programs such as excel and google sheets can produce combined charts where one dependent variable is shown as a bar graph and another dependent variable is shown as an overlying line graph creating a line graph in excelyou can use a line graph in excel to display trends over time in excel line graphs are appropriate if you have text labels dates or a few numeric labels on the horizontal axis x axis here are the steps to create a line graph in excel if you are using numeric labels empty cell a1 before you create the line graph uses of a line graphdifferent data visualization tools are best used for specific purposes and a line graph is no exception depending on the underlying data a line graph is best for | |
what is a line graph used for | line graphs are used to track changes over different periods of time line graphs can also be used as a tool for comparison to compare changes over the same period of time for more than one group | |
how is a line graph useful in finance | line graphs are useful in finance because they are very effective at creating visual representations of trends over time for this reason they are often used to depict how a stock is performing over a specific period of time | |
what are the 3 types of line graphs | a line graph may be a simple line graph multiple line graph or compound line graph each type of graph has a varying degree of dependent variables and how the user wishes to display the relationship between these variables | |
what are the parts of a line graph | line graphs can be highly customizable in terms of title labels markers style of line and other non essential features however all line graphs must have an x axis independent variable a y axis quantity of dependent variable and input data dependent variables the data points for each dependent variable are marked on the graph are connected by a line the bottom line | |
what is the line of best fit | line of best fit refers to a line through a scatter plot of data points that best expresses the relationship between those points statisticians typically use the least squares method sometimes known as ordinary least squares or ols to arrive at the geometric equation for the line either through manual calculations or by using software a straight line will result from a simple linear regression analysis of two or more independent variables a multiple regression involving several related variables can produce a curved line in some cases investopedia eliana rodgersunderstanding the line of best fitthe line of best fit estimates a straight line that minimizes the distance between itself and where observations fall in some data set the line of best fit is used to show a trend or correlation between the dependent variable and independent variable s it can be depicted visually or as a mathematical expression line of best fit is one of the most important concepts in regression analysis regression refers to a quantitative measure of the relationship between one or more independent variables and a resulting dependent variable regression is of use to professionals in a wide range of fields from science and public service to financial analysis line of best fit and regression analysisto perform a regression analysis a statistician collects a set of data points each including a complete set of dependent and independent variables for example the dependent variable could be a firm s stock price and the independent variables could be the standard and poor s 500 index and the national unemployment rate assuming that the stock is not listed in the s p 500 the sample set could be each of these three data sets for the past 20 years on a chart these data points would appear as a scatter plot a set of points that may or may not appear to be organized along any line if a linear pattern is apparent it may be possible to sketch a line of best fit that minimizes the distance of those points from that line if no organizing axis is visually apparent regression analysis can generate a line based on the least squares method this method builds the line which minimizes the squared distance of each point from the line of best fit to determine the formula for this line the statistician enters these three results for the past 20 years into a regression software application the software produces a linear formula that expresses the causal relationship between the s p 500 the unemployment rate and the stock price of the company in question this equation is the formula for the line of best fit it is a predictive tool providing analysts and traders with a mechanism to project the firm s future stock price based on those two independent variables | |
how to calculate the line of best fit | a regression with two independent variables such as the example discussed above will produce a formula with this basic structure in this equation y is the dependent variable c is a constant b1 is the first regression coefficient and x1 is the first independent variable the second coefficient and second independent variable are b2 and x2 respectively drawing from the above example the stock price would be y the s p 500 would be x1 and the unemployment rate would be x2 the coefficient of each independent variable represents the degree of change in y for each additional unit in that variable if the s p 500 increases by one the resulting y or share price will go up by the amount of the coefficient the same is true for the second independent variable the unemployment rate in a simple regression with one independent variable that coefficient is the slope of the line of best fit in this example or any regression with two independent variables the slope is a mix of the two coefficients the constant c is the y intercept of the line of best fit | |
how do you find the line of best fit | there are several approaches to estimating a line of best fit to some data the simplest and crudest involves visually estimating such a line on a scatter plot and drawing it in to your best ability the more precise method involves the least squares method this is a statistical procedure to find the best fit for a set of data points by minimizing the sum of the offsets or residuals of points from the plotted curve this is the primary technique used in regression analysis | |
is a line of best fit always straight | by definition a line is always straight so a best fit line is linear however a curve may also be used to describe the best fit in a set of data indeed a best fit curve may be squared x2 cubic x3 quadratic x4 logarithmic ln a square root or anything else that can be described mathematically with an equation note however that simpler explanations of fit are often preferred | |
how is a line of best fit used in finance | for financial analysts the method of estimating a line of best fit can help to quantify the relationship between two or more variables such as a stock s share price and its earnings per share eps by performing this type of analysis investors often try to predict the future behavior of stock prices or other factors by extrapolating that line out in time the bottom linea line of best fit estimates the one line that minimizes the distance between it and observed data estimating a line of best fit is a key component of regression analysis in statistics in order to infer the relationships between some dependent variable and one or more explanatory variables in finance the line of best fit is utilized in this way to conduct econometric studies and in certain tools used in technical analysis | |
what are line of business limitations | line of business limitations is a federal income tax rule applied to fringe benefits that employers provide their employees it states that if a company is engaged in multiple lines of business and an employee receives a fringe benefit from a line of the company s business that she does not work in she must pay taxes on that benefit 1 understanding line of business limitationsas one example of line of business limitations if an individual works for a movie theater and her company also owns an amusement park if she received free or discounted admission to the amusement park she would be required to pay taxes on the value of the free ticket or the discount because the internal revenue service irs would consider this benefit to be income however if she saw a movie for free at the theater where she worked she would generally not have to pay tax on the amount of the free movie ticket because it would not be subject to line of business limitations 2 products or services sold primarily to employees rather than to the general public are not considered employee discounts and thus do not fall under the line of business limitations rules 2 an employer s line of business is defined in the enterprise standard industrial classification esic manual which is published by the u s office of management and budget an employer is considered to have more than one line of business if it offers products or services for sale to customers in more than one two digit esic classification 3 exemptions from line of business limitationsin some circumstances business lines may be aggregated into one in determining the eligibility of benefits under the line of business limitations aggregation is required when it is unusual in the employer s industry for one line of business to be operated separately from the others it is also required when a substantial number of employees perform substantial services for more than one line of a company s business making it difficult to assign employees to specific lines of business in these cases an employee will not incur taxes for fringe benefits provided by their employer 3 reciprocal agreements among two employers that operate in the same line of business also exempt employees who receive tax free benefits from the other employer from the line of business limitations rules to qualify these must be written reciprocal agreements and must not cause either employer to incur substantial additional cost the reciprocal agreement rule only applies to benefits provided at no additional cost but does not cover qualified employee discounts 4 | |
what is a line of credit loc | a line of credit loc is a preset borrowing limit offered by banks and financial institutions to their personal and business customers lines of credit can be used at any time until the limit is reached the limit is set by the issuer based on the borrower s creditworthiness as money is repaid it can be borrowed again in the case of an open line of credit the borrower can access funds from the loc at any time as long as they do not exceed the maximum amount or credit limit set in the agreement investopedia julie bangunderstanding lines of credit locs a line of credit is a credit product that banks and other financial institutions offer their customers they are available for both personal customers and business clients like other credit products customers must qualify to be approved for a line of credit customers may apply for or be pre approved for a credit line the limit on the loc is based on the borrower s creditworthiness all locs consist of a set amount of money that can be borrowed as needed paid back and borrowed again the amount of interest size of payments and other rules are set by the lender some locs allow you to write checks while others issue a debit card that can be used to access the available credit a line of credit can be secured or unsecured secured locs come with lower rates as they are backed by collateral while unsecured locs typically come with higher rates the loc is highly flexibility which is its main advantage borrowers can request a certain amount but they do not have to use it all rather they can tailor their spending from the loc to their needs and owe interest only on the amount that they draw not on the entire credit line in addition borrowers can adjust their repayment amounts as needed based on their budget or cash flow they can repay for example the entire outstanding balance all at once or just make the minimum monthly payments there are different types of locs that financial institutions offer some of the most common types of locs include personal business and home equity lines of credit helocs we explore these in more detail below unsecured vs secured lines of credit locs most locs are unsecured loans this means that the borrower does not promise the lender any collateral to back the loc one notable exception is a home equity line of credit heloc which is secured by the equity in the borrower s home from the lender s perspective secured locs are attractive because they provide a way to recoup the advanced funds in the event of nonpayment 1for individuals or business owners secured locs are attractive because they typically come with a higher maximum credit limit and significantly lower interest rates than unsecured locs unsecured locs are also more difficult to obtain and often require a higher credit score or credit rating lenders attempt to compensate for the increased risk by limiting how much can be borrowed and by charging higher interest rates that is one reason why the annual percentage rate apr on credit cards is so high credit cards are technically unsecured locs with the credit limit how much you can charge on the card representing its parameters but you do not pledge any assets when you open the card if you start missing payments there s nothing that the credit card issuer can seize in compensation an loc can have a major impact on your credit score in general if you use more than 30 of the borrowing limit your credit score will drop 2revolving vs non revolving lines of credit locs an loc is often considered to be a type of revolving account also known as an open end credit account this arrangement allows borrowers to spend the money repay it and spend it again in a virtually never ending revolving cycle revolving accounts such as locs and credit cards are different from installment loans such as mortgages and car loans with installment loans consumers borrow a set amount of money and repay it in equal monthly installments until the loan is paid off once an installment loan has been paid off consumers cannot spend the funds again unless they apply for a new loan non revolving locs have the same features as revolving credit or a revolving loc a credit limit is established funds can be used for a variety of purposes interest is charged normally and payments may be made at any time there is one major exception the pool of available credit does not replenish after payments are made once you pay off the loc in full the account is closed and cannot be used again as an example personal locs are sometimes offered by banks in the form of an overdraft protection plan a banking customer can sign up to have an overdraft plan linked to their checking account if the customer goes over the amount available in checking the overdraft keeps them from bouncing a check or having a purchase denied like any loc an overdraft must be paid back with interest types of lines of credit locs locs come in a variety of forms with each falling into either the secured or unsecured category beyond that each type of loc has its own characteristics this provides access to unsecured funds that can be borrowed repaid and borrowed again opening a personal loc usually requires a credit history of no defaults a credit score of 670 or higher and reliable income having savings helps as does collateral in the form of stocks or certificates of deposit cds though collateral is not required for a personal loc personal locs are used for emergencies weddings overdraft protection travel and entertainment and to help smooth out bumps for those with irregular income helocs are the most common type of secured loc a heloc is secured by the market value of the home minus the amount owed which becomes the basis for determining the size of the loc typically the credit limit is equal to 75 or 80 of the market value of the home minus the balance owed on the mortgage helocs often come with a draw period usually 10 years during which the borrower can access available funds repay them and borrow again after the draw period the balance is due or a loan is extended to pay off the balance over time 3 helocs typically have closing costs including the cost of an appraisal on the property used as collateral since the tax cuts and jobs act tcja of 2017 interest paid on a heloc is only deductible if the funds are used to buy build or substantially improve the property that serves as collateral for the heloc 4businesses use these to borrow on an as needed basis instead of taking out a fixed loan the financial institution extending the loc evaluates the market value profitability and risk taken on by the business and extends an loc based on that evaluation the loc may be unsecured or secured depending on the size of the loc requested and the evaluation results as with almost all locs the interest rate is variable this type can be either secured or unsecured but is rarely used with a demand loc the lender can call the amount borrowed due at any time payback until the loan is called can be interest only or interest plus principal depending on the terms of the loc the borrower can spend up to the credit limit at any time this is a special secured demand loc in which collateral is provided by the borrower s securities typically an sbloc lets the investor borrow anywhere from 50 to 95 of the value of assets in their account sblocs are non purpose loans meaning that the borrower may not use the money to buy or trade securities almost any other type of expenditure is allowed sblocs require the borrower to make monthly interest only payments until the loan is repaid in full or the brokerage or bank demands payment which can happen if the value of the investor s portfolio falls below the level of the loc limitations of lines of credit loc the main advantage of an loc is the ability to borrow only the amount needed and avoid paying interest on a large loan that said borrowers need to be aware of potential problems when taking out an loc | 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what are common types of lines of credit | the most common types of lines of credit are personal business and home equity in general personal locs are typically unsecured while business locs can be secured or unsecured helocs are secured and backed by the market value of your home | |
how can i use a line of credit | you can use an loc for many purposes examples include paying for a wedding a vacation or an unexpected financial emergency | |
how does an loc affect my credit score | lenders conduct a credit check when you apply for an loc this results in a hard inquiry on your credit report which lowers your credit score in the short term your credit score will also drop if you tap into more than 30 of the borrowing limit 2the bottom lineconsumers and businesses rely on credit to make large purchases keep their operations going or make investments in their growth a line of credit is one type of product offered to consumers to help them achieve these goals to qualify for a line of credit a borrower must first qualify and be approved by a lender credit lines can be used by borrowers more than once up to their credit limit as long as they make the minimum payment | |
what is a linear relationship | a linear relationship or linear association is a statistical term used to describe a straight line relationship between two variables linear relationships can be expressed either in a graphical format where the variable and the constant are connected via a straight line or in a mathematical format where the independent variable is multiplied by the slope coefficient and added by a constant which determines the dependent variable a linear relationship may be contrasted with a polynomial or non linear curved relationship formula for a linear relationshipmathematically a linear relationship is one that satisfies the equation y m x b where m slope b y intercept begin aligned y mx b textbf where m text slope b text y intercept end aligned y mx bwhere m slopeb y intercept in this equation x and y are two variables that are related by the parameters m and b graphically y mx b plots in the x y plane as a line with slope m and y intercept b the y intercept b is simply the value of y when x 0 the slope m is calculated from any two individual points x1 y1 and x2 y2 as m y 2 y 1 x 2 x 1 m frac y 2 y 1 x 2 x 1 m x2 x1 y2 y1 | |
what does a linear relationship tell you | there are three sets of necessary criteria an equation has to meet in order to qualify as a linear one an equation expressing a linear relationship can t consist of more than two variables all of the variables in an equation must be to the first power and the equation must graph as a straight line a commonly used linear relationship is a correlation which describes how close to linear fashion one variable changes as related to changes in another variable in econometrics linear regression is an often used method of generating linear relationships to explain various phenomena it is commonly used in extrapolating events from the past to make forecasts for the future not all relationships are linear however some data describe relationships that are curved such as polynomial relationships while still other data cannot be parameterized linear functionsmathematically similar to a linear relationship is the concept of a linear function in one variable a linear function can be written as follows f x m x b where m slope b y intercept begin aligned f x mx b textbf where m text slope b text y intercept end aligned f x mx bwhere m slopeb y intercept this is identical to the given formula for a linear relationship except that the symbol f x is used in place of y this substitution is made to highlight the meaning that x is mapped to f x whereas the use of y simply indicates that x and y are two quantities related by a and b in the study of linear algebra the properties of linear functions are extensively studied and made rigorous given a scalar c and two vectors a and b from rn the most general definition of a linear function states that c f a b c f a c f b c times f a b c times f a c times f b c f a b c f a c f b examples of linear relationshipslinear relationships are pretty common in daily life let s take the concept of speed for instance the formula we use to calculate speed is as follows the rate of speed is the distance traveled over time if someone in a minivan is traveling between sacramento and marysville in california a 44 1 mile stretch on highway 99 and the complete journey ends up taking about 45 minutes they will have been traveling just below 60 mph while there are more than two variables in this equation it s still a linear equation because one of the variables will always be a constant distance a linear relationship can also be found in the equation distance rate x time because distance is a positive number in most cases this linear relationship would be expressed on the top right quadrant of a graph with an x and y axis if a bicycle made for two was traveling at a rate of 30 miles per hour for 20 hours the rider would end up traveling 600 miles represented graphically with the distance on the y axis and time on the x axis a line tracking the distance over those 20 hours would travel straight out from the convergence of the x and y axis in order to convert celsius to fahrenheit or fahrenheit to celsius you would use the equations below these equations express a linear relationship on a graph c 5 9 f 3 2 degree c frac 5 9 degree f 32 c 95 f 32 f 9 5 c 3 2 degree f frac 9 5 degree c 32 f 59 c 32 assume that the independent variable is the size of a house as measured by square footage which determines the market price of a home the dependent variable when it is multiplied by the slope coefficient of 207 65 and is then added to the constant term 10 500 if a home s square footage is 1 250 then the market value of the home is 1 250 x 207 65 10 500 270 062 50 graphically and mathematically it appears as follows in this example as the size of the house increases the market value of the house increases linearly some linear relationships between two objects can be called a proportional relationship this relationship appears asy k x where k constant y x proportional quantities begin aligned y k times x textbf where k text constant y x text proportional quantities end aligned y k xwhere k constanty x proportional quantities | |
what is a positive linear relationship | a positive linear relationship is represented by an upward line on a graph it means that if one variable increases then the other variable increases conversely a negative linear relationship would show a downward line on a graph if one variable increases then the other variable decreases | |
what is a nonlinear relationship | a nonlinear relationship can be seen by scatter plots on a graph following a certain pattern but that pattern is not linear meaning the representation is not a straight line | |
what is an example of a linear relationship in statistics | an example of a linear relationship would be an hourly paid worker the more hours they work the more money they receive this relationship would be a linear one as every increase in an hour worked would correspond to the same increase in pay the bottom linea linear relationship in statistics shows a straight line relationship between two variables it typically shows how well two variables correlate with one another though no behavioral relationship is perfect enough to generate a true linear relationship trends are usually found in data to assume one exists | |
what is a linearly weighted moving average | a linearly weighted moving average lwma is a moving average calculation that more heavily weights recent price data the most recent price has the highest weighting and each prior price has progressively less weight the weights drop in a linear fashion lwmas are quicker to react to price changes than simple moving averages sma and exponential moving averages ema the formula for the linearly weighted moving average lwma is lwma p n w 1 p n 1 w 2 p n 2 w 3 w where p price for the period n the most recent period n 1 is the prior period and n 2 is two periods prior w the assigned weight to each period with the highest weight going first and then descending linearly based on the number of periods being used begin aligned text lwma frac left p n w 1 right left p n 1 w 2 right left p n 2 w 3 right sum w textbf where text p price for the period text n the most recent period n 1 is the prior period text and n 2 is two periods prior text w the assigned weight to each period with the text highest weight going first and then descending linearly text based on the number of periods being used end aligned lwma w pn w1 pn 1 w2 pn 2 w3 where p price for the periodn the most recent period n 1 is the prior period and n 2 is two periods priorw the assigned weight to each period with thehighest weight going first and then descending linearlybased on the number of periods being used | |
how to calculate the linearly weighted moving average lwma | let s say we are interested in calculating the linearly weighted moving average of the closing price of a stock over the last five days begin by multiplying today s price by 5 yesterday s by 4 and the price of the day before by 3 continue multiplying each day s price by its position in the data series until reaching the first price in the data series which is multiplied by 1 add these results together divide by the sum of the weights and you will have the linearly weighted moving average for this period p5 5 p4 4 p3 3 p2 2 p1 1 5 4 3 2 1 let s say that the price of this stock fluctuates as so day 5 90 90day 4 90 36day 3 90 28day 2 90 83day 1 90 91 90 90 5 90 36 4 90 28 3 90 83 2 90 91 1 5 4 3 2 1 90 62the lwma of this stock over this time period is 90 62 | |
what does the linearly weighted moving average lwma tell you | the linearly weighted moving average is a method of calculating the average price of an asset over a given period of time this method weights recent data more heavily than older data and is used to analyze market trends 1generally when the price is above the lwma and the lwma is rising the price is above the weighted average which helps confirm an uptrend if the price is below the lwma and the lwma is pointed down this helps confirm a downtrend in price | |
when assessing trends traders should be aware of the lookback period the lookback period is how many periods are being calculated into the lwma a five period lwma will track price very closely and is useful for tracking small trends as the line will be easily breached by even minor price oscillations a 100 period lwma will not track the price as closely meaning there will often be room between the lwma and the price this allows for the determination of longer term trends and reversals | like other types of moving averages the lwma may sometime be used to indicate support and resistance areas for example in the past the price bounced off the lwma on multiple occasions and then moved higher this indicates the line is acting as support the line may continue to act as support in the future failure to do so could indicate the price trend has undergone a change it could be reversing to the downside or may be starting a period where it moves more sideways lwma will often be an option you can toggle when looking at a trading chart different investment platforms will offer different lwma options that you can likely filter on or hide advantages of linearly weighted moving averagesthere s a few benefits to using linearly weighted moving averages lwma gives more weight to recent data points making it more sensitive to short term price movements compared to simple moving averages this sensitivity allows traders and investment analysts to react more quickly to changes in market conditions meaning investors may be using more relevant criteria or information in fast paced markets or when identifying very short term trends despite its sensitivity to recent data lwma still maintains a level of smoothness in its output unlike some other short term indicators that may exhibit excessive volatility lwma strikes a balance between responsiveness and stability it also allows users to change the weighting scheme so traders can fine tune the indicator to suit their style or however they want to prioritize historical data lwma can be applied to various types of financial data ranging from price volume and other market metrics its versatility makes it a valuable tool for traders regardless of the asset class or underlying industry traders can use lmwa for almost any type of investment ranging from stocks and currencies to commodities and cryptocurrencies downsides to linearly weighted moving averageslmwa also comes with some downsides lwma can also be more susceptible to outliers or extreme price movements because outliers have a greater impact on the weighted average they can distort the interpretation of the indicator potentially leading to false signals or overreactions to noise in the data if those outliers correspond to points given higher weights unlike simple moving averages which involve straightforward arithmetic averaging lwma requires more complex calculations due to its weighted scheme determining the appropriate weighting factors and updating the average with each new data point can difficult and time intensive so lwma is simply a more complex tool compared to other averaging methodologies the effectiveness of lwma depends on the selection of weighting factors which can introduce subjectivity into the analysis while some traders may prefer heavier weighting for recent data to capture short term trends others may opt for a more balanced approach the choice of weighting scheme can vary depending on individual preferences so there may be some risk to inconsistency in how lwma is calculated and used there s several data considerations as well despite its sensitivity to recent data lwma may still lag behind major trend reversals particularly during periods of sharp market volatility this lag can result in missed opportunities similarly traders may overfit a model to fit prior data leading to poor future performance due to market deviations in addition in market conditions where prices oscillate within a relatively narrow range lwma may produce false signals or generate excessive noise making it pretty tough for traders to find true patterns alternatives to linearly weighted moving averageif lwma doesn t quite seem the best option for you there s several alternatives that exist each with its own unique characteristics and applications in technical analysis some of the most common alternatives include as is the case with any form of technical indicator an investment may not materialize how you think it may based on prior history be mindful how you use lwma when making investment decisions common finance cases for linearly weighted moving averagelwma can be used in a few different ways within finance primarily when crafting an investment strategy for a specific security lwma is mainly used as technical analysis for certain use cases such as lmwa and timeframeslmwa can be applied across various timeframes each serving different purposes in technical analysis short term lwma typically covers shorter periods such as 5 day or 10 day averages lwma with this short of a period provides traders with insights into immediate price dynamics and very short term trends useful for potential day trades traders often use short term lwma to generate quick entry and exit signals particularly in fast moving markets where responsiveness is crucial medium term lwma covers longer periods such as 20 day or 50 day averages this is a more balanced period and offers trends over a slightly longer timeframe traders commonly use medium term lwma to assess the overall direction of the market and identify potential trend reversals or continuations over several weeks to months with this timeframe traders are less interested in capturing rapid changes that may fluctuate from day to day long term lwma encompasses even longer periods such as 100 day or 200 day averages this provides insights into broader market trends and investor sentiment over extended timeframes traders and investors use long term lwma to analyze the macroeconomic environment identify major trend shifts and make strategic investment decisions over longer investment horizons such as several months to years | |
what is linearly weighted moving average lwma | lwma is a variation of the moving average indicator that assigns greater importance or weight to more recent data points while still considering historical data this weighting scheme offers advantages in terms of sensitivity to recent data and reduced lag compared to simple moving averages | |
how does lwma differ from simple moving average sma | lwma differs from sma in its weighting scheme while sma assigns equal weight to all data points within the averaging period lwma gives more weight to recent data points this makes lwma more responsive to short term price movements but also potentially more susceptible to outliers and noise | |
how is lwma calculated and what are its components | lwma is calculated by multiplying each data point by a corresponding weight factor and then summing the results the weighting factors typically form a linear sequence with the most recent data point assigned the highest weight and older data points assigned progressively lower weights | |
how can lwma help identify trends in financial markets | lwma can help identify trends in financial markets by analyzing the relationship between short term and long term lwma lines crossovers between these lines can signal changes in trend direction with bullish crossovers indicating potential uptrends and bearish crossovers indicating potential downtrends the bottom linethe linearly weighted moving average is a technical analysis tool used to smooth price data by giving more weight to recent prices unlike simple moving averages where all data points are weighted equally lwma assigns higher weights to more recent data points making it more responsive to recent price changes | |
what is a linked savings account | a linked savings account is a savings account that is connected to another account such as a checking or negotiable order of withdrawal now account generally linked savings accounts are held at the same bank as the customer s other accounts making it easier to transfer funds between accounts | |
when a customer opens a linked savings account the bank or financial institution connects it by account number to a new or existing checking or now account in the system since these accounts make it easier to transfer money they re convenient for people who want to accumulate savings1 | linked accounts are sometimes called packaged accounts the balances on both linked accounts are generally reported on a single consolidated statement making it easier for customers to keep track of their money linked savings accounts also allow customers to keep the majority of their funds in a savings account which may earn more interest moving money into the checking or now account as needed some packaged or linked accounts may also offer incentives such as lower fees or free checking the balances on your savings account and any checking now or other accounts to which it s linked are generally reported on a single consolidated statement special considerationsother types of accounts such as a certificate of deposit cd can also be linked to your other bank accounts banks may encourage you to link up multiple accounts and continue to deposit money into those accounts by offering special benefits such as a higher interest rate 2there are instances however where linking accounts could lead to additional fees for example one benefit of linking your savings and checking account is overdraft protection if your checking account balance goes too low some banks will automatically transfer money from your savings account into your checking account to protect you from incurring overdraft fees however this service often comes with its own fee plus if you trigger that sort of transfer too frequently your savings account could fall below the minimum balance which could cause other fees to kick in if you find that the ideal checking and savings accounts for your needs aren t available at the same bank you may also be able to link accounts from different banks this can work well if you re looking to hold your extra cash in a high yield savings account that may not be available at the bank where you do your checking look for an option to link external accounts you ll need to provide more information to get this done and transfers may take longer to go through there are also sometimes limits on the number of external transfers you can make each month benefits of linked savings accountsbanks may want to incentivize linked savings accounts so that they can hold a larger share of your business for a longer amount of time this could mean higher rates for you especially if you re able to maintain a higher balance plus having your accounts in one place with transfers available quickly and easily simplifies money management | |
why might consumers want to consider a linked account | linked savings accounts allow customers to keep the majority of their funds in a savings account which may earn more interest moving money into the checking or now account as needed some packaged or linked accounts may also offer incentives such as lower fees or free checking | |
what you should be careful of when opening a linked savings account | linking accounts may trigger additional fees often banks will automatically transfer funds from one account to the other to maintain a particular balance or when you have insufficient funds to cover a payment such transactions often may have fees for each instance this practice can become especially problematic if it causes your savings account to fall below the minimum balance which could cause other fees to kick in linking might also add another step if you decide to close one of the accounts or change banks | |
what is the lintner model | the lintner model is an economic formula for determining an optimal corporate dividend policy it was proposed in 1956 by former harvard business school professor john lintner and focuses on two core notions 12though originally a descriptive model intended to explain how firms are observed to set dividends the model has also been used as a prescriptive model of how firms should set dividend policy the following formula describes a mature corporation s dividend payout d t k p a c t d t d t 1 e t where d dividend dividend t is the dividend at time t the change from the previous dividend at period t 1 pac pac 1 is a partial adjustment coefficient t d target dividend k a constant e t the error term begin aligned d t k pac td t d t 1 e t textbf where d text dividend text dividend t text is the dividend at time text t the change from the previous text dividend at period t 1 text pac text pac 1 text is a partial text adjustment coefficient td text target dividend k text a constant e t text the error term end aligned dt k pac tdt dt 1 et where d dividenddividendt is the dividend at timet the change from the previousdividend at period t 1 pac pac 1 is a partialadjustment coefficienttd target dividendk a constantet the error term in 1956 john lintner developed this dividend model through inductive research with 28 large public manufacturing firms 32 although lintner passed away years ago his model remains the accepted starting point for understanding how companies dividends behave over time 4lintner observed the following important facets of corporate dividend policies while all companies wish to sustain a constant dividend payout to maximize shareholder wealth natural business fluctuations force companies to project the dividends in the long run based on their target payout ratio from lintner s formula a company s board of directors thus bases its decisions about dividends on the firm s current net income yet adjusts them for certain systemic shocks gradually adapting them to shifts in income over time the lintner model and setting corporate dividendsa company s board of directors sets the dividend policy including the rate of payout and the date s of distribution this is one case in which shareholders are not able to vote on a corporate measure unlike a merger or acquisition and additional critical issues such as executive compensation the three main approaches to corporate dividend policy are as follows | |
what are lipper indexes | lipper indexes are indexes that track the financial performance of different types of managed fund strategies each index is based on the performance of the largest publicly traded funds in the strategy group understanding lipper indexeslipper indexes are constructed and managed by lipper which is owned by reuters lipper manages indexes for nearly every type of mutual fund strategy in the investable market public disclosure of lipper index performance is provided by the wall street journal and by barron s to construct each index lipper averages the returns of funds in the investable market that are managed to the index s strategy funds used for index return calculations are chosen by assets under management the number of funds used by lipper to obtain lipper index performance varies broadly most lipper indexes use approximately 30 to 100 funds to obtain index performance lipper indexes are often included in mutual fund performance reporting investment managers may use lipper and lipper index data in reporting for their clients a lipper index may also be used as a mutual fund s primary benchmark lipper index analysislipper indexes can help give retail investors insight into the best performing strategies as well as the performance of various strategies throughout different market timeframes through this webpage lipper provides investors with information on the best and worst performing indexes across market categories one year lipper index returns through july 24 2021 show the lipper upright growth fund as the top performing strategy in the global equity category this strategy reports a one year return of 168 7 meanwhile the worst performing global equity strategy over the past year has been the lipper sga international equity fund with a one year return of 82 02 it should be noted that performance data changes every year and that new funds may be created or older funds cease to operate over time in the bond market the lipper ubs fi enhanced global high yield is the top performing strategy with a one year return of 24 17 the worst performing strategy in the bond market over the past year has been the lipper intermediate us government index this strategy has a one year return of 0 87 in the money market category lipper index returns ranged from 0 2 to 0 01 over the one year period through jan 5 2018 the top performing index was the lipper transamerica government money market fund with a return of 0 2 the worst performing fund in the category was the lipper legg mason partners premium money market trust with a return of 0 01 | |
what are liquid alternatives | liquid alternative investments or liquid alts are mutual funds or exchange traded funds etfs that aim to provide investors with diversification and downside protection through exposure to alternative investment strategies these products selling point is that they are liquid meaning that they can be bought and sold daily unlike traditional alternatives which offer monthly or quarterly liquidity they come with lower minimum investments than the typical hedge fund and investors don t have to pass net worth or income requirements to invest critics argue that the liquidity of so called liquid alts will not hold up in more trying market conditions most of the capital invested in liquid alts entered the market during the post financial crisis bull market critics also contend that the fees for liquid alternatives are too high for proponents though liquid alts are a valuable innovation because they make the strategies employed by hedge funds accessible to retail investors understanding liquid altsliquid alts aim to counteract the drawbacks of alternative investments by providing investors with exposure to alternative investments through products that can be redeemed daily just like a mutual fund an alternative investment is a loosely defined term that in principle refers to almost any asset that is not a long only stock or a bond examples include fine art private equity derivatives commodities real estate distressed debt and hedge funds a drawback of any of these investments however is their lack of liquidity under normal market conditions a 5 000 position in alphabet inc is easy enough to offload in milliseconds without affecting the price even if the private equity market is in rude health however it will take considerably more time and effort to sell an alternative investment and there may be lock up periods it can also be more difficult to take a small position in alternative investments criticism of liquid alternativesthe number of liquid alternative funds has mushroomed since the financial crisis that began in 2007 as individual investors and advisors are increasingly eager to protect against downside risk by using hedge fund like strategies in a july 2015 survey barron s and morningstar found that 63 of advisors planned to allocate more than 11 of their portfolios to liquid alts within the next five years 1 since then however the liquid alts market has seen an influx of fund closures and consolidations leading to a period of slowed growth for the market which reached a size of 192 billion as measured by assets at the end of 2015 asset growth in the market has remained inconsistent and per strategic insight liquid alt assets rebounded to 184 billion at the end of the third quarter in 2017 from 179 billion at the end of 2015 critics point out that liquid alt funds charge higher fees on average than other actively managed mutual funds second stuffing otherwise illiquid assets into liquid packaging has the potential to backfire hedge funds generally require investors to agree to withdraw funds only every quarter or year the ability to trade in and out of liquid alts has contributed to their popularity but if a downturn precipitates a run on the funds providers may be forced to sell assets at sharply discounted prices and investors may suffer as a result examples of liquid alt strategies and sub categoriesmorningstar has identified 12 categories described as liquid alternative strategies the largest accounting for over 80 of the funds at the time were the following other categories include bear market multi currency volatility and trading leveraged commodities the last includes just one fund citi has listed three different types of mutual fund structures that classify as liquid alternatives single manager funds multi alternatives and commodities or managed futures funds meanwhile goldman sachs has devised a different set of categories that more closely parallel strategies commonly employed by hedge funds goldman has divided its universe of liquid alt funds into equity long short tactical trading macro multistrategy event driven and relative value approaches | |
what is a liquid asset | a liquid asset is an asset that can easily be converted into cash in a short amount of time liquid assets include things like cash money market instruments and marketable securities both individuals and businesses can be concerned with tracking liquid assets as a portion of their net worth for the purposes of financial accounting a company s liquid assets are reported on its balance sheet as current assets investopedia xiaojie liuunderstanding liquid assetsa liquid asset is cash on hand or an asset that can be easily converted to cash in terms of liquidity cash is supreme since cash as legal tender is the ultimate goal assets can then be converted to cash in a short time are similar to cash itself because the asset holder can quickly and easily get cash in a transaction exchange liquid assets are often viewed as cash and likewise may be called cash equivalents because the owner is confident the assets can easily be exchanged for cash at any time generally several factors must exist for a liquid asset to be considered liquid it must be in an established liquid market with a large number of readily available buyers ownership transfer must also be secure and easily facilitated in some cases the amount of time to cash conversion will vary the most liquid assets are cash and securities that can immediately be transacted for cash companies can also look to assets with a cash conversion expectation of one year or less as liquid collectively these assets are known as a company s current assets this broadens the scope of liquid assets to include accounts receivable and inventory all liquid assets are current assets by their nature the benefits of long term assets aren t generally recognized within the next 12 months in financial accounting the balance sheet breaks assets down by current and long term with a hierarchical method in accordance to liquidity a company s current assets are assets a company looks to for cash conversion within a one year period current assets have different liquidity conversion timeframes depending on the type of asset cash on hand is considered the most liquid type of liquid asset since it is cash itself cash is legal tender that an individual or company can use to make payments on liability obligations cash equivalents and marketable securities follow cash as investments that can be transacted for cash within a very short period often immediately in the open market other current assets can also include accounts receivable and inventory on the balance sheet assets become less liquid by their hierarchy as such the long term assets portion of the balance sheet includes non liquid assets these assets are expected for cash conversion in one year or more land real estate investments equipment and machinery are considered types of non liquid assets because they take time to convert to cash costs can be incurred to convert them to cash and they may not convert to cash at all examples of liquid assetsexamples of liquid assets held by both individuals and businesses include cash is the most liquid asset possible as it is already in the form of money this includes physical cash savings account balances and checking account balances it also includes cash from foreign countries though some foreign currency may be difficult to convert to a more local currency cash equivalents are other asset holding that may be treated similar as cash due to their low risk or insurance coverage and short term duration examples of cash equivalents include treasury bills treasury notes commercial paper certificates of deposit cd or money market funds note that some items may have less liquidity based on terms of the vehicle for example some cds can not be broken or require a substantial penalty for early termination some marketable securities are considered liquid based on the underlying asset examples may include stocks bonds preferred shares of stock index funds or etfs other instruments may include futures or options a critical part in understanding the liquidity of marketable securities is their holding duration liquid assets must be convertible to cash quickly depending on the nature of the security this isn t always possible also be mindful that certain investments must be reported on the balance sheet as a long term asset and are not technically considered current assets accounts receivable are a controversial type of liquid asset on one hand a company has a legal claim to cash that is due to them often as part of their business operations a customer may have bought something on credit after the credit term is up the company is due to receive cash on the other hand accounts receivable balances may go uncollected it may also take an unforeseeably long amount of time to collect payment from a delinquent client when considering liquid assets be aware that a company may not collect all of its accounts receivable balance for this reason liquid asset analysis may include the contra asset allowable for doubtful accounts balance to reduce accounts receivable to only what the company thinks they will collect another difficult current asset to assess is inventory in some situations inventory may be considered a liquid asset if it has a large market with highly visible marketplaces for a product in high demand consider the latest iphone any models being recorded as inventory may quickly be demanded by the market alternatively what if demand for the iphone sours what if a new model comes out and apple is stuck with obsolescent inventory what if primary warehouses are broken into and most of the inventory stolen in theory inventory is a liquid asset because it gets converted to cash as part of normal business operations however should business slow in a recession or any event above occurs inventory may not be as liquid analyzing liquid assetsin business liquid assets are important to manage for both internal performance and external reporting a company with more liquid assets has a greater capability of paying debt obligations as they become due companies have strategic processes for managing the amount of cash on their balance sheet available to pay bills and manage required expenditures industries like banking have a required amount of cash and cash equivalents that the company must hold to comply with industry regulations there are several key ratios analysts use to analyze liquidity often called solvency ratios two of the most common are the quick ratio and the current ratio in the current ratio current assets are used to assess a company s ability to cover its current liabilities with all of its current assets and to survive unplanned and special circumstances like a pandemic the quick ratio is a more stringent solvency ratio that looks at a company s ability to cover its current liabilities with just its most liquid assets the quick ratio does include accounts receivable the quick ratio and the current ratio are key financial statement ratios used to break down liquidity levels and analyze solvency liquid and non liquid marketsboth individuals and businesses deal with liquid and non liquid markets cash as supreme is the ultimate goal for liquidity and ease of conversion to cash generally separates the distinction of a liquid vs non liquid market but there can also be some other considerations a liquid asset must have an established market in which enough buyers and sellers exist so that an asset can easily be converted to cash the market price of the asset should also not be significantly changed resulting in less liquidity or greater illiquidity for subsequent market participants the stock market is an example of a liquid market because of its large number of buyers and sellers which results in easy conversion to cash because stocks can be sold using electronic markets for full market prices on demand publicly listed equity securities are liquid assets liquidity can vary by security however based on market capitalization and average share volume transactions the foreign exchange market is deemed to be the most liquid market in the world because it hosts the exchange of trillions of dollars each day 24 hours a day making it impossible for any one individual to influence the exchange rate 1 other liquid markets include commodities and secondary market debt illiquid markets have their own considerations and constraints these factors can be important for individuals and investors when allocating for liquid vs non liquid assets and making investment decisions for example a real estate owner may wish to sell a property to pay off debt obligations real estate liquidity can vary depending on the property and market but it is not a liquid market like stocks as such the property owner may need to accept a lower price in order to sell the property quickly a quick sale can have some negative effects on the market liquidity overall and will not always generate the full market value expected another type of controversial illiquid asset may include private market fixed income which can be liquidated or traded but less actively overall in considering illiquid assets investors usually apply some type of liquidity premium which requires a higher yield and return for the risk of liquidity requirements on the value of liquid assetssome companies or entities may face requirements on the value of liquid assets this restriction is to ensure the short term health of the company and protection of its clients the u s department of housing and urban development has outlined liquid asset requirements for financial institutions to become fha approved lenders for example non supervised mortgagees must possess a minimum of 200 000 of liquid assets at all times 2the federal deposit insurance corporation fdic stipulates the level of unencumbered liquid assets lending institutions must have on hand it also outlines policies when institutions are required to have more liquid assets are required such as 1 recent trends show substantial reductions in large liability accounts 2 the loan portfolio includes a high volume of non marketable loans or 3 the institution s access to capital markets is impaired 3last the securities and exchange commission sec has proposed amendments to money market funds rule 2a 7 outlines requirements after the acquisition of an asset where a money market fund must hold at least 10 of its total assets in daily liquid assets and 30 of its total assets in weekly liquid assets new proposals are being considered to increase both daily and weekly liquid asset thresholds 4 |
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