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what is a crm loyalty program | crm stands for customer relationship management and a crm loyalty program is like other loyalty programs it seeks to extend a customer s lifetime value by providing rewards to customers for repeat business these rewards can take the form of points discounts freebies coupons and more and are distributed after customer purchases feedback referrals and other positive business interaction the bottom lineloyalty programs help attract customers and maintain brand loyalty though loyalty programs benefit customers they also benefit businesses through repeat business which helps retain market share and generate sales and earnings | |
what is ltd limited | ltd is a standard abbreviation for limited a form of corporate structure available in countries including the u k ireland and canada the term appears as a suffix that follows the company name indicating that it is a public or private limited company in a limited company owners and shareholders liabilities are limited to the capital they originally invested if such a company becomes insolvent the owners personal assets remain protected because the business is a legal entity and liable for its debts understanding ltd limited a limited company is its own legal entity a private limited company has one or more members also called shareholders or owners who buy in through private sales directors are company employees who keep up with all administrative tasks and tax filings but do not need to be shareholders the company s finances are separate from the owners and are taxed separately the company owns all profits pays taxes on them distributes a portion to shareholders as dividends if applicable and retains the rest as working capital a director may withdraw funds only for a salary dividend payment or loan limited companies are an organizational form that features limited liability similar to corporations in the u s by setting up a private limited company it becomes separate from the people who run it any profits made by the company can be pocketed after taxes are paid the corporation s finances must be kept separate from personal finances to avoid confusion public limited companies plcs are commonly used in the u k and some commonwealth countries the mandatory use of the plc abbreviation after the company s name serves to instantly inform investors or anyone dealing with the company that the company is public and probably fairly large 1plc stock can be listed or unlisted on a stock exchange like any other major entity they are strictly regulated and are required to publish their true financial health so shareholders and future stakeholders can size up the true worth of their stock and the risks associated | |
how to set up a limited company | for anyone in the u k there are several things you ll need to set up a limited company including 23once you have these together you can then register as a private limited company types of limited companieslimited company structures are common worldwide and are codified in many nations though the regulations governing them can differ widely from one country 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 50 000 such a structure is widely employed by larger companies 4all companies listed on the london stock exchange lse are plcs 5in the united states a corporation is similar to a limited company using the suffix inc incorporated or corp corporation some states in the u s do permit the use of ltd limited after a company name these designations depend 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 6many 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 public shares advantages and disadvantages of a limited companybecause the number of shareholders is unlimited ownership is spread among multiple owners rather than just one also shareholders only lose as much as they have invested if the company becomes insolvent for example say a limited company issues 100 shares valued at 150 each shareholder a and shareholder b own 50 shares each and paid in full for 25 shares each if the company becomes insolvent the maximum amount shareholder a and shareholder b each lose is 3 750 the value of the 25 shares each member holds a limited company has greater tax advantages than a sole proprietorship partnership or similar organization because the owners are not personally responsible for paying taxes the company as a legal entity is the company continues to exist if an owner sells or transfers their shares as long as it has other shareholders and remains profitable and operational | |
when shares are sold privately the amount of capital raised might be restricted because offering shares to the public opens up the possibility of much more funding this also restricts any opportunity for growth a company might want because the pool of investors is limited | the costs for setting up a limited company are generally higher than those of sole traders in the u k and sole proprietorships in the u s these entities are small businesses that are only required to register to conduct business thus incurring much lower costs in the u k both public and private companies have to file financial statements that are available to the public this is different to the u s where private companies financial statements are indeed private there are disadvantages to having your company s financial statements publicly available not least because your competitors can find out a lot about your business there is some relief from these rules for smaller ltd companies in the u k which are allowed to file abbreviated accounts that do not show much information running a business as a limited company requires a time consuming process that requires the owners to follow accounting principles tax filing requirements administration requirements and stricter employee regulations regarding benefits ownership is diversified among shareholderspersonal assets are protectedpotential tax advantagesprivately sold shares limit capital raisinghigher starting costsstricter accounting and administrative requirements | |
are llc and ltd the same | limited liability companies llcs u s and limited companies ltd u k and others are two different types of business structures llcs are unincorporated business entities while limited companies are incorporated in their jurisdictions key differences in their jurisdictions stipulate the different rules regarding ownership liability taxes and dividends | |
what are the pros and cons of a limited liability company | the pros of a limited liability company llc which is a u s based legal entity that is different from a limited company include the protection of personal assets by legally separating the owner s personal assets from their business assets pass through taxation and easier filing taxes the cons include being more costly to set up and maintain than a general partnership or sole proprietorship more difficult to transfer ownership and typically higher taxes | |
why do businesses use ltd | businesses incorporate themselves as ltd limited to limit their liability to the capital they invest if the business cannot pay its liabilities and declares bankruptcy creditors can only go after business assets not the owner s personal assets the bottom lineltd limited structured corporations provide owners with a degree of financial protection limiting recourse to only the amount invested in the business while keeping their personal assets safe this type of abbreviation is more commonly used in the u k and not in the u s where in the u s a similar type of company is an incorporated business | |
what is lucrative | lucrative means profitable and it can be used to describe any venture or activity that has the potential to make money thus an investment or commercial venture is considered to be lucrative if it produces substantial wealth a lucrative activity could be anything from collecting art designing an invention or following through on an idea for an innovative product or service lucrative can be used in both past and present tenses in the present tense it describes the potential for profitability in the past tense it indicates that the venture has produced wealth understanding lucrativean analyst may conclude that a particular stock is highly lucrative what the analyst is suggesting is that this stock has the potential to be profitable it s tempting to suggest that the stock market is a lucrative place to make money but it is also an easy place to lose a large amount of money people will always have their own interpretation of whether an idea or a course of action is lucrative at least when it is used to describe potential rather than reality special considerationslucrative can be used to describe an effort by an individual or an organization to produce a profit on a short or long term basis but in business lucrativeness is associated with net earnings rather than gross revenue by that measure some of the most lucrative companies in america are apple inc microsoft corp alphabet inc jpmorgan chase co and intel corp lucrative comes from the latin word lucrativus which translates to has gained an individual may want to pursue a career or launch a business that provides a positive return on investment the occupation or venture might have the potential for high revenue generation but the direct costs and risks may reduce or eliminate its lucrativeness that is a very real hazard of doing business a business owner may need to procure insurance against workplace accidents and product liability compliance with regulatory requirements can incur additional costs that further reduce the lucrativeness of a business the path to achieving lucrativeness can be complex a startup company might raise capital through numerous funding rounds the investors and the founders alike will need the company to pursue strategies that maximize the operating revenue and earnings and create the potential for profitable returns for the investors if the company were to sell to a buyer who offered less than the overall investment no matter how big that number was the deal would not be considered lucrative measuring lucrativenessinvestors and analysts can determine if a company is lucrative by analyzing its financial statements the financial statements include the balance sheet the income statement and the cash flow statement there are certain indicators that are fairly straightforward in determining a company s lucrativeness such as its cash levels and whether it is earning a profit or making a loss as determined by its net income however financial statements are more complex than just reading numbers as all three statements relate to one another and each company is different from one another for example two companies may have the same debt levels but the stories might be completely different one company might have debt to finance growth because it is prospering while another company might have debt because it needs to borrow money to finance its daily operations since its earnings are not enough to keep the company in business it s important to know why certain numbers are what they are furthermore it is important to analyze financial ratios as they tell a deeper picture than just the line items on financial statements some important financial metrics to help determine if a company is lucrative include the working capital ratio the quick ratio the debt equity ratio and return on equity lastly when determining whether a company is lucrative it s essential to analyze the company in the context of its industry and its competitors if you compare the numbers of a tech company to an airline company for example you are comparing apples and oranges each industry has different capital expenditures profit levels debt levels and so on analyzing a company within its industry and amongst its peers gives a clearer picture of its lucrativeness real world exampleapple is considered to be one of the most lucrative companies in the world the company has always had a strong customer base due to its computers and operating system that stood in contrast to pcs and microsoft s operating system however the company really took off when it launched the ipod mp3 music player then the iphone and then the ipad the release of these three products turned apple into one of the most powerful companies in the world and the largest company in the world by market capitalization 1just because a company has been lucrative in the past does not mean it will be so in the future when considering an investment it s important to conduct a thorough financial analysis including a company s future prospects and if it is keeping up with shifting consumer tastes as of fiscal year end 2021 apple had a net income profit of 94 7 billion a strong indicator of lucrativeness the company s total cash levels were 190 5 billion and its total term debt was 119 billion apple has enough cash to cover its debt 2looking at its working capital ratio one can also tell apple is in a strong financial position as its current assets 135 billion are larger than its current liabilities 125 billion 2 | |
what are examples of lucrative jobs | examples of lucrative jobs include doctors lawyers financial traders dentists it managers engineers computer programmers and financial managers lucrative jobs are considered to be so due to the high salaries they pay | |
what are the most lucrative small businesses | lucrative small businesses include auto repair shops car wash services food trucks it support electronics repair personal trainers vacation rentals and language courses 3 | |
what are lucrative investments for beginners | lucrative investments for beginners are those with low risk that still pay out a strong return such investments include etfs certificates of deposit cds high yield savings accounts 401 k accounts and mutual funds 4the bottom linelucrative refers to profitability it can be any investment or venture that returns a profit meaning that there is money left over after all costs have been accounted for in some instances it can even refer to an experience that left someone fulfilled businesses are considered lucrative if they are generating profits rather than losses an investment is considered lucrative if the investor receives more money than they put in determining if an investment or venture will be lucrative can be a difficult task but analyzing certain financial metrics can help an individual make a well informed decision | |
what is the luhn algorithm | the luhn algorithm also known as the modulus 10 algorithm is a formula that is used to determine whether the identification number provided by a user is accurate the formula is widely used in validating credit card numbers as well as other number sequences such as government social security numbers ssns today the luhn algorithm is an essential component in the electronics payments system and is used by all major credit cards | |
how the luhn algorithm works | the luhn formula algorithm was developed by a german computer scientist named hans peter luhn in 1954 while working as a researcher at ibm 1 the exact workings of the algorithm are based on modular arithmetic a mathematical technique developed by carl friedrich gauss in the early 19th century although its detailed workings are rather complex it is best known for allowing computers to quickly assess whether the credit card numbers provided by customers are accurate 2the way it does so is by applying a series of computations to the credit card number given adding up the results of those computations and checking whether the resulting number matches the expected result if it does then the credit number is deemed valid if not the algorithm will reject the credit card number indicating that the user made an error when inputting the number from a customer s perspective we use the luhn algorithm all the time without even realizing it when placing orders online or using a merchant s point of sale pos terminal computer systems are able to quickly tell when we have made a mistake inputting our information this is because the luhn algorithm has been incorporated into those systems programming without it we would need to wait until the entire purchase order is submitted before realizing whether the transaction was approved the luhn algorithm in other words helps us quickly identify user errors and thereby speed up the pace of transactions real world example of the luhn algorithmone of the central concepts within the luhn algorithm is the use of so called check digits these digits consist of numbers that are inserted into the broader number sequence in order to help verify or check whether the whole number is authentic for credit cards the check digit consists of a single digit printed at the end of the credit card number rather than being specifically chosen by the credit card company the check digit is instead automatically determined by the luhn algorithm based on the preceding numbers in the sequence when users enter their credit card numbers to complete transactions the payment processing software can use the luhn algorithm to detect whether the specified number is accurate based in part on its check digit today the luhn algorithm is integrated into popular programming languages and code libraries making it relatively easy to include luhn based identification number verification in new software applications | |
what is a lump sum payment | a lump sum payment is a monetary sum paid in one single payment instead of allocated into installments lump sums are commonly associated with pension plans and other retirement vehicles such as 401 k accounts where retirees might accept a smaller upfront lump sum payment rather than a larger payment issued in installments over time understanding a lump sum paymentlump sum payments can describe a bulk payment to acquire a group of items such as a company paying one sum for the inventory of another business lottery winners will also typically have the option to take a lump sum payout versus yearly payments annuities provide a degree of financial security but an older retiree in poor health might derive greater benefit from a lump sum payment securing an upfront payment often guarantees an asset to pass on to your heirs an upfront payment might enable you to buy a house or other large purchase that you would otherwise not be able to afford similarly you can invest the money and potentially earn a higher rate of return than the effective rate of return associated with the annual payments the company providing the pension will calculate the commuted value of the pension to ensure they can meet their obligations lump sum vs annuity payments an exampleto illustrate how lump sum and annuity payments work imagine you win 10 million in the lottery if you take the lump sum payment the entire winnings would be subject to income tax in that year and you would be in the highest tax bracket however if you choose the annuity option the payments could come to you over several decades for example instead of 10 million in income in one year your annuity payment might be 300 000 a year you would avoid the highest federal income tax bracket of 37 for single people with incomes greater than 609 350 in 2024 578 125 in 2023 or 731 200 for married couples filing jointly in 2024 693 750 in 2023 12such tax questions depend on the size of the lottery win current income tax rates projected income tax rates your state of residency when you win in which state you will live after your win and investment returns but if you can earn an annual return of more than 3 to 4 the lump sum option usually makes more sense compared to a 30 year annuity | |
which is better a lump sum or an annuity | there are pros and cons to accepting a lump sum payment rather than an annuity fixed payments over a period of time the right choice depends on the value of the lump sum versus the periodic payments and one s financial goals it is not always best to take the lump sum payment in lieu of periodic annual payments if offered the choice consider taxes investments and the net present value npv which accounts for the time value of money | |
is a lump sum risky | receiving a lump sum payment is not necessarily risky however if you receive it as physical cash security may be an issue it may also be risky to deposit the lump sum in one investment option such as a single stock rather than diversifying your investment diversification reduces risk | |
why is it called lump sum | a lump according to merriam webster is an adjective that means not divided into parts or entire 3 a sum according to the dictionary is an indefinite or specified amount of money or the whole amount or aggregate 4 as a term lump sum means an amount of money that is paid at one time or a single sum of money 5the bottom linea lump sum payment might be an option in multiple situations in mortgage lending a bullet repayment is the lump sum of the outstanding loan paid to a lender more commonly you may have a lump sum option with a pension a lump sum comes with pros and cons one advantage is that with a lump sum you have more control up front and once you receive it you can invest the money however you wish however you may receive less money in a lump sum than you would have if you took periodic payments taxes are also a concern this is a situation where it s a good idea to choose carefully if you have any questions consider reaching out to a financial advisor | |
what is a luxury item | a luxury item is not necessary to live but it is deemed highly desirable within a culture or society demand for luxury goods increases when a person s wealth or income increases typically the greater the percentage increase in income the greater the percentage increase in luxury item purchases since luxury goods are expensive wealthy people are disproportionate consumers of luxury goods those who are not wealthy don t usually buy luxury goods since a greater percentage of their income goes to need based expenses in order to live luxury goods can be considered conspicuous consumption which is the purchase of goods mainly or solely to show off one s wealth understanding luxury itemsluxury items tend to be sensitive to a person s income or wealth meaning that as wealth rises so do purchases of luxury items as a result luxury items are considered to show positive income elasticity of demand which is a measure of how responsive the demand is for a good to a change in a person s income conversely if there is a decline in income demand for luxury items will decline 1for example demand for large high definition hd tvs would likely increase as income rises since people have the extra income to splurge on a big tv however if a recession occurs which is negative economic growth causing people to lose their job or experience less income from a lower paying job the demand for hd tvs would likely decline as a result hd tvs would be considered a luxury item luxury items are the opposite of necessity goods or need expenses which are the goods that people buy regardless of their income level or wealth food water and household utilities would likely be considered necessity goods for most people however eating blue lobster for dinner would be considered a luxury item luxury items can also refer to services such as full time or live in chefs and housekeepers some financial services can also be considered luxury services by default because persons in lower income brackets generally do not use them luxury goods also have special luxury packaging to differentiate the products from mainstream products of the same category of course the definition of a luxury item is somewhat subjective depending on a person s financial circumstances for example one might consider a car a luxury item while another might consider it a necessity luxury item vs inferior goodan inferior good is a good that experiences less demand as a person s income increases as a result it has a negative elasticity of demand for example cheap store brand coffee would likely see an increase in demand when people s income is low however when their income increases the demand for store brand coffee would decline as people opt for the more expensive higher quality coffee as a result the store brand coffee would be an inferior good luxury items are not inferior goods instead they re the goods that people opt to buy when their income increases to replace inferior goods a luxury good may become an inferior good at different income levels for example if a wealthy person gets wealthy enough they may stop buying increasing numbers of luxury cars in order to start collecting airplanes or yachts because at the higher income levels the luxury car would become an inferior good although the designation of an item as a luxury item doesn t necessarily translate to high quality such goods are often considered to be on the highest end of the market in terms of quality and price special considerationssome luxury products purport to be examples of veblen goods which are goods that see their demand rise because they re considered status symbols in other words as the price of the good increases so too does demand as people perceive it has a higher value as a result veblen goods have a positive price elasticity of demand which measures the change in demand as a result of a change in price for example raising the price on a bottle of perfume can increase its perceived value which can cause sales to increase rather than decrease certain luxury items may be subjected to a specific tax or luxury tax large or expensive recreational boats or automobiles can be subject to a federal tax for example the u s levied a luxury tax on certain automobiles in the 1990s but ended the tax in 2003 23 luxury taxes are considered progressive because they typically only affect people with high net wealth or income examples of luxury itemsalthough luxury items can be different from one person to another the following items are considered luxury items in an economy | |
what is a luxury tax | a luxury tax is a sales tax or surcharge levied only on certain products or services that are deemed non essential or accessible only to the super wealthy the luxury tax may be charged as a percentage of the purchase price or as a percentage of the amount above a specified level for example a luxury tax might be imposed on real estate transactions above 1 million or car purchases over 70 000 understanding a luxury taxall taxes are controversial but some are more controversial than others a sales tax is generally charged to all buyers of goods and services within the jurisdiction that levies it when charged on essential goods like food and medicine they are seen as disproportionately burdensome to lower income consumers who are forced to pay a higher percentage of their income in sales taxes but what about a tax only on yachts jewelry or real estate valued at more than 1 million now the only ones that pay the tax are those few who can afford these goods luxury taxes generally fall into two categories both taxes are relatively popular because they hit only a minority of the population but even luxury taxes can be politically controversial a so called yacht tax was enacted in the u s in 1991 in order to pay down the federal deficit it covered a number of luxury goods including private jets fur coats and jewelry as well as yachts the tax was abolished in 1993 on the grounds that it killed the yacht industry and many american jobs along with it luxury taxes are often imposed during times of war to increase government revenues or to fund another large expense without raising taxes on the general population their opponents cite the danger of job losses but the vast majority of people are unaffected and unconcerned then again sometimes luxury taxes just don t work a window tax was imposed on english homeowners beginning in 1696 the theory was that people with bigger houses had more windows and therefore should pay more taxes than those in modest dwellings rich people throughout the land promptly boarded up most of their windows since luxury goods are attributed to the wealthy in society it is expected that the majority of taxpayers will not be affected by a luxury tax however as what is viewed as luxury changes over time and as prices rise due to inflation more people will be subject to this progressive tax goods considered as normal or ordinary goods may be hit with luxury taxes if the government needs to increase its revenue in the u s the yacht tax lasted only from 1991 to 1993 before being abolished as a job killer expensive homes are a frequent target of luxury taxes but here the definition of luxury gets murky certain states charge a mansion tax on ownership transfers of homes valued at above a certain level in new york state that level is 1 million that may target only the wealthiest buyers in syracuse or rochester but it s a modest sum for a home in manhattan in vermont the mansion tax kicks in at 100 000 the median home price in vermont is about 261 000 in economics luxury goods are referred to as veblen goods in honor of thorstein veblen who famously described the concept of conspicuous consumption that defines them as goods for which demand increases as price increases the more a thing costs the more coveted it becomes since taxes increase the price of a good the effect of luxury taxes should be increased demand for goods that are defined as luxuries in practice however luxury goods have a high income elasticity of demand by definition both the income effect and the substitution effect will decrease demand sharply as the tax rises plainly put some people who yearn to own a yacht will decide that a canoe will do | |
what is m1 | m1 is the money supply that is composed of currency demand deposits other liquid deposits which includes savings deposits m1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash however near money and near near money which fall under m2 and m3 cannot be converted to currency as quickly understanding m1m1 money is a country s basic money supply that s used as a medium of exchange m1 includes demand deposits and checking accounts which are the most commonly used exchange mediums through the use of debit cards and atms of all the components of the money supply m1 is defined the most narrowly m1 does not include financial assets such as bonds m1 money is the money supply metric most frequently utilized by economists to reference how much money is in circulation in a country note that in may 2020 the definition of m1 changed to include savings accounts given the increased liquidity of such accounts 2money supply and m1 in the united statesup until march 2006 the federal reserve published reports on three money aggregates m1 m2 and m3 since 2006 the fed no longer publishes m3 data 3 m1 covers types of money commonly used for payment which includes the most basic payment form currency the amount of currency in circulation or held in deposits at the federal reserve is called m0 or the monetary base 45m1 is defined as the sum of all currency in circulation plus the value of most liquid deposits at commercial banks except those held by the government foreign banks or other depository institutions 5 because m1 is so narrowly defined very few components are classified as m1 the broader classification m2 also includes savings account deposits small time deposits and retail money market accounts 6closely related to m1 and m2 is money zero maturity mzm mzm consists of m1 plus all money market accounts including institutional money market funds mzm represents all assets that are redeemable at par on demand and is designed to estimate the supply of readily circulating liquid money in the economy 7the money supply within the united states is graphically depicted by the federal reserve the graphical depiction lists the money supply in billions of dollars on the y axis and the date on the x axis the information is periodically updated on the federal reserve of st louis site 8 | |
how to calculate m1 | the m1 money supply is composed of federal reserve notes otherwise known as bills or paper money and coins that are in circulation outside of the federal reserve banks and the vaults of depository institutions paper money is the most significant component of a nation s money supply m1 also includes traveler s checks of non bank issuers demand deposits and other checkable deposits ocds including now accounts at depository institutions and credit union share draft accounts for most central banks m1 almost always includes money in circulation and readily cashable instruments but there are slight variations in the definition across the world for example m1 in the eurozone also includes overnight deposits 9 in australia it includes current deposits from the private non bank sector 10 the united kingdom however does not use m0 or m1 class of money supply any longer its primary measure is m4 or broad money also known as the money supply 111213m2 and m3 include all of the components of m1 plus additional forms of money including money market accounts savings accounts and institutional funds with significant balances money supply and the u s economyfor periods of time measurement of the money supply indicated a close relationship between money supply and some economic variables such as the gross domestic product gdp inflation and price levels economists such as milton friedman argued in support of the theory that the money supply is intertwined with all of these variables 14however in the past several decades the relationship between some measurements of the money supply and other primary economic variables has been uncertain at best thus the significance of the money supply acting as a guide for the conduct of monetary policy in the united states has substantially lessened 3m1 vs m2 vs m3the m1 money supply includes all physical currency traveler s checks demand deposits and other checkable deposits e g checking accounts while the m1 is a measure of all the most liquid forms of money in an economy other forms of money supply are slightly different the m2 money supply is a broader measure of money supply that includes all components of m1 as well as near money m2 includes savings deposits money market securities and other time deposits which are less liquid and not as suitable as exchange mediums although many elements of the m2 money supply can can still be quickly converted into cash or checking deposits they are not as instant as the components of the m1 money supply on the other hand the m3 money supply is an even broader measure of the money supply that includes all components of m1 and m2 in addition it includes all forms of savings deposits money market deposits time deposits in amounts of less than 100 000 and institutional money market funds m3 is arguably the most comprehensive measure of the money supply compared to the other calculated amounts of money supply as it includes a wider range of savings and investments that can be readily converted into cash | |
how the m1 money supply changes | governments intentionally change the money supply to have residual impacts on the broader economy for example in response to the covid 19 pandemic governments increased the m1 money supply making it easier to come about capital to help stimulate the economy keep workers employed and encourage business activity 8central banks can increase the m1 money supply by increasing the amount of physical currency in circulation lending money to banks or purchasing securities on the open market on the other hand as seen in the aftermath of covid 19 central banks reverse these policies to cool the economy to fight inflation businesses and consumer spending also have an impact on the m1 money supply as consumers and businesses spend more money they create greater demand for that local currency therefore as consumers write checks use debit cards or use credit cards the m1 money supply increases | |
why is m1 money supply so high | in may 2020 the federal reserve changed the official formula for calculating the m1 money supply prior to may 2020 m1 included currency in circulation demand deposits at commercial banks and other checkable deposits after may 2020 the definition was expanded to include other liquid deposits including savings accounts this change was accompanied by a sharp spike in the reported value of the m1 money supply 15 | |
why is m2 more stable than m1 | the m2 money supply is more stable than the m1 money supply because the m1 money supply only contains the most liquid of assets whereas it may take a little longer for components of the m2 money supply to convert or be liquidated the m1 money supply more often changes due to the ease of being able to transact who controls the m1 money supply the total supply of money is managed by the federal reserve banks the federal reserve banks establish monetary and fiscal policies to influence the economy create jobs or combat inflation | |
how does the m1 money supply affect inflation | as the federal reserve increases the money supply money is easier to come by debt usually costs less or tax breaks approved by the federal government may reduce tax liabilities as a result consumers have more capital available to spend an unfortunate downside of increasing the money supply is that the demand for goods broadly increases as consumers have greater purchasing power as a result prices for good broadly tend to increase for example when the cost of debt is low and the money supply increases the cost of taking a home mortgage i e mortgage rates are low thus applying upward pressure on housing prices the bottom linethe m1 money supply consists of the sum of currency demand deposits and other liquid deposits each component is often seasonally adjusted and this measurement contains only the most liquid vehicles compared to other money supply measurements the money supply often directly relates to inflation and the federal reserve often manages the money supply via fiscal and monetary policy to influence the economy correction may 14 2023 an earlier version of this article incorrectly stated that the m0 money supply is equal to the amount of currency in circulation in fact m0 also includes the reserve balances held by banks at the federal reserve | |
what is m2 | m2 is the u s federal reserve s estimate of the total money supply including all the cash people have on hand plus all the money deposited in checking accounts savings accounts and other short term saving vehicles such as certificates of deposit cds retirement account balances and time deposits above 100 000 are omitted from m2 1the federal reserve tracks a separate money supply number m1 that includes currency in people s pockets or their checking accounts and savings accounts the money deposited in time deposits and money market funds is not counted in m1 for the fed s purposes this is near money that is the funds cannot be used as a medium of exchange and are not instantly convertible to cash 1understanding m2measuring the money supply of an economy is a challenging proposition due to the complexity of the concept of money and the size and level of detail of an economy there are multiple ways of measuring a money supply these measures are typically classified as m s and fall along a spectrum from narrow to broad monetary aggregates typically the m s range from m0 to m3 with m2 representing a fairly broad measure m2 is a more comprehensive calculation than m1 because it includes assets that are highly liquid but are not intended to be routinely used as cash consumers and businesses don t usually use time deposits when making purchases or paying bills but in a pinch they could convert them to cash in short order 13 includes numbers on large time deposits institutional money market funds and other large liquid assets this is published on a quarterly basis 2the federal reserve releases m1 and m2 numbers every thursday at 4 30 p m the st louis fed tracks the numbers 3economists usually use the broader m2 number when discussing the money supply because modern economies often involve transfers between different account types for example a business may periodically transfer 10 000 from a money market account to a checking account this transfer would increase m1 which doesn t include money market funds while keeping m2 stable since it contains both accounts m2 is a critical factor in forecasting inflation inflation and current interest rates have major ramifications for the general economy as they heavily influence job availability consumer spending business investment currency strength and trade balances 4changes in money supplythe federal reserve s dual mandate is price stability and maximum sustainable employment one of the ways it works to maintain price stability is by manipulating the m2 money supply the m2 numbers provide important insight into the direction extremity and efficacy of central bank policy m2 has consistently been growing it was 4 7 trillion on jan 3 2000 and was 20 8 trillion on march 2 2024 the most extreme growth occurred from feb 2020 to june 2020 during the coronavirus pandemic when m2 jumped from 15 3 trillion to 18 trillion other large increases have also coincided with economic weakness during which expansionary monetary policy was deployed by the central bank 5 | |
what is the value of m2 now | the m2 was 20 8 trillion in march 2024 that s how much cash americans had in their wallets checking accounts and short term savings accounts 5 | |
is m2 a leading economic indicator | m2 is seen as a reliable predictor of inflation so it might be counted among the leading economic indicators m3 is considered by some economists to be an even better predictor of inflation this is published quarterly rather than monthly and includes data on large liquid assets held by financial institutions the bottom linethe federal reserve isn t keeping track of how much cash you ve got in your wallet but it has a pretty good idea of how much cash we as a population have at any given time the important point isn t the number but how the number is increasing or decreasing from month to month too much cash is seen as a warning sign of a growing threat of inflation | |
what is m3 | m3 is a measure of the money supply that includes m2 as well as large time deposits institutional money market funds short term repurchase agreements repo and larger liquid assets the m3 measurement includes assets that are less liquid than other components of the money supply and are referred to as near money which are more closely related to the finances of larger financial institutions and corporations than to those of small businesses and individuals understanding m3the money supply sometimes referred to as the money stock has many classifications of liquidity the total money supply includes all of the currency in circulation as well as liquid financial products such as certificates of deposit cds the m3 classification is the broadest measure of an economy s money supply it emphasizes money as a store of value more so than as a medium of exchange hence the inclusion of less liquid assets in m3 less liquid assets would include those that are not easily convertible to cash and therefore not ready to use if needed right away m3 for the united states as of july 2023 3m3 was traditionally used by economists to estimate the entire money supply within an economy and by central banks to direct monetary policy in order to control inflation consumption growth and liquidity over medium and long term periods in order to determine m3 each m3 component is given equal weight during calculation for example m2 and large time deposits are treated the same and aggregated without any adjustments while this does create a simplified calculation it assumes that each component of m3 affects the economy in the same way which is not the case in the actual economy this equal weighting can be considered a shortcoming of the m3 measurement of the money supply which is why it is no longer used as a true measurement of the money supply any longer disuse of m3since 2006 m3 is no longer tracked by the u s central bank the federal reserve however even before that primarily in the 1980s the fed only focused on m2 to guide policy in 1993 fed chairman alan greenspan said that the fed would no longer use any money aggregates including m2 to guide fomc policy 42the federal reserve bank of st louis and some other sources still publish m3 figures for economic data purposes 3m3 and the other m classificationsm3 can be thought of as a congregation of all the other classifications of money m0 m1 and m2 plus all of the less liquid components of the money supply m0 refers to the currency in circulation such as coins and cash m1 includes m0 demand deposits such as checking accounts traveler s checks and currency that is out of circulation but readily available 1m2 includes all of m1 and all of m0 plus savings deposits and certificates of deposit which are less liquid than checking accounts m3 includes all of m2 and all of m1 and m0 but adds the least liquid components of the money supply that are not in circulation such as repurchase agreements that do not mature for days or weeks 1 | |
what is m1 m2 and m3 money | m1 m2 and m3 are classifications of money in the united states m1 consists of all money in circulation as well as deposits in banks m2 money includes m1 money plus savings deposits and money market funds m3 which has been discontinued includes m2 plus time deposits | |
what is m4 money | m4 money is a classification of money in the united kingdom that includes money that is circulated amongst the public non financial institutions private sector retail and wholesale banks and building society deposits 5 | |
how much m1 money is in circulation | as of july 2023 the seasonally adjusted m1 money in circulation is 18 4 trillion 6the bottom linem3 is a classification of money that includes all other classifications m0 m1 and m2 and other components of the money supply the fed ceased its publication in 2006 however it is still printed for historical comparisons by other sources 32 | |
what is m pesa | m pesa is a mobile banking service that allows users to store and transfer money through their mobile phones m pesa was introduced in kenya as an alternative way for the population of the country to have access to financial services safaricom the largest mobile phone operator in kenya launched m pesa in 2007 it has been a joint venture of safaricom and vodacom since 2020 and serves the democratic republic of congo drc egypt ghana kenya lesotho mozambique and tanzania 1m stands for mobile and pesa means money or payment in swahili 2one of the drives for fintech innovations like m pesa is financial inclusion which is mostly geared toward underbanked or unbanked people financial inclusion seeks solutions for residents who have no access to banks or who can t afford the required minimum deposits in the digital banking era in order for this initiative to succeed different sectors must collaborate in sharing data with each other to build a meaningful digital platform this cross communication tactic used by m pesa is developing rapidly in sub saharan africa where the telecommunication and banking sectors are working together to create mobile banking services for those with limited access to traditional banking understanding m pesam pesa is a virtual banking system that provides transaction services through a sim card once the sim has been inserted into the card slot of the mobile device users can make payments and transfer money to vendors and family members with sms messages users with no bank accounts can access the numerous m pesa outlets distributed across the country the money that needs to be stored is given to the kiosk attendant who transfers the amount in digital form to the user s m pesa s account cash collected digitally is stored in an m pesa trust account the bank accounts function like regular checking accounts from which bills can be paid deposits can be received and more m pesa provides receipts as proof of transaction all transactions require a pin and both parties receive an sms notification with the full name of the counterparty and the amount of funds deposited or withdrawn from the user s account the mobile receipt which is received within seconds helps to promote transparency for all individuals involved in a transaction 21an example of m pesaa farmer with no bank account wants to deposit his commodity sale proceeds of 1 000 shillings to his m pesa account he deposits the money with a kiosk agent or attendant the agent in turn uses their phone to access the client s account with the client s registered phone number and credit the account for 1 000 shillings the farmer gets an sms notification within seconds of the deposit confirming how much was deposited and what his account balance holds the farmer also can easily withdraw cash from his account by using the m pesa attendant s or agent s number provided at the outlet and a personal pin special considerationsthrough mobile payment services like m pesa market traders debt collectors farmers and cab drivers don t need to carry around or transact in large amounts of cash this means that the occurrence of theft robbery and fraud can be reduced also individuals and business owners don t have to wait in long lines for hours to make their electricity and water bill payments because these can be made using m pesa using m pesa allows small business owners in remote and rural areas to conduct financial transactions safely and easily via their mobile phones to combat fraud m pesa is regulated by the appropriate offices of each country where it is offered to register for an m pesa account users must provide a government id and any other information such as a home address required by the government where they live this way each transaction is marked with the identification of the party transferring paying depositing or withdrawing money from an account 2 | |
does m pesa work in the u s | m pesa does not work in the u s it serves seven countries in africa including the drc egypt ghana kenya lesotho mozambique and tanzania 1 | |
what services are available on m pesa | m pesa allows users to deposit or withdraw cash accept mobile deposits pay for goods or services at participating businesses and more it functions much like a checking account with the same mobile features offered by standard checking accounts 2 | |
what is an example of mobile money | funds that can be transferred electronically sometimes are called mobile money the funds typically are connected directly to a bank account or they might be in the form of a prepaid gift card or prepaid debit or credit card apps like paypal or venmo are common examples electronic payment services that function similarly to m pesa the bottom linem pesa was designed in 2007 to serve unbanked or underbanked residents of kenya and since has expanded to serve six other nations in africa it functions much like paypal or other common payment apps except that users of m pesa do not need to have a bank account through m pesa agents located throughout the countries where the service is available customers can deposit cash in exchange for equivalent funds that are immediately transferred to their electronic account the opposite also holds true customers can transfer electronic funds in exchange for cash | |
what is m pesa | m pesa is a mobile banking service that allows users to store and transfer money through their mobile phones m pesa was introduced in kenya as an alternative way for the population of the country to have access to financial services safaricom the largest mobile phone operator in kenya launched m pesa in 2007 it has been a joint venture of safaricom and vodacom since 2020 and serves the democratic republic of congo drc egypt ghana kenya lesotho mozambique and tanzania 1m stands for mobile and pesa means money or payment in swahili 2one of the drives for fintech innovations like m pesa is financial inclusion which is mostly geared toward underbanked or unbanked people financial inclusion seeks solutions for residents who have no access to banks or who can t afford the required minimum deposits in the digital banking era in order for this initiative to succeed different sectors must collaborate in sharing data with each other to build a meaningful digital platform this cross communication tactic used by m pesa is developing rapidly in sub saharan africa where the telecommunication and banking sectors are working together to create mobile banking services for those with limited access to traditional banking understanding m pesam pesa is a virtual banking system that provides transaction services through a sim card once the sim has been inserted into the card slot of the mobile device users can make payments and transfer money to vendors and family members with sms messages users with no bank accounts can access the numerous m pesa outlets distributed across the country the money that needs to be stored is given to the kiosk attendant who transfers the amount in digital form to the user s m pesa s account cash collected digitally is stored in an m pesa trust account the bank accounts function like regular checking accounts from which bills can be paid deposits can be received and more m pesa provides receipts as proof of transaction all transactions require a pin and both parties receive an sms notification with the full name of the counterparty and the amount of funds deposited or withdrawn from the user s account the mobile receipt which is received within seconds helps to promote transparency for all individuals involved in a transaction 21an example of m pesaa farmer with no bank account wants to deposit his commodity sale proceeds of 1 000 shillings to his m pesa account he deposits the money with a kiosk agent or attendant the agent in turn uses their phone to access the client s account with the client s registered phone number and credit the account for 1 000 shillings the farmer gets an sms notification within seconds of the deposit confirming how much was deposited and what his account balance holds the farmer also can easily withdraw cash from his account by using the m pesa attendant s or agent s number provided at the outlet and a personal pin special considerationsthrough mobile payment services like m pesa market traders debt collectors farmers and cab drivers don t need to carry around or transact in large amounts of cash this means that the occurrence of theft robbery and fraud can be reduced also individuals and business owners don t have to wait in long lines for hours to make their electricity and water bill payments because these can be made using m pesa using m pesa allows small business owners in remote and rural areas to conduct financial transactions safely and easily via their mobile phones to combat fraud m pesa is regulated by the appropriate offices of each country where it is offered to register for an m pesa account users must provide a government id and any other information such as a home address required by the government where they live this way each transaction is marked with the identification of the party transferring paying depositing or withdrawing money from an account 2 | |
does m pesa work in the u s | m pesa does not work in the u s it serves seven countries in africa including the drc egypt ghana kenya lesotho mozambique and tanzania 1 | |
what services are available on m pesa | m pesa allows users to deposit or withdraw cash accept mobile deposits pay for goods or services at participating businesses and more it functions much like a checking account with the same mobile features offered by standard checking accounts 2 | |
what is an example of mobile money | funds that can be transferred electronically sometimes are called mobile money the funds typically are connected directly to a bank account or they might be in the form of a prepaid gift card or prepaid debit or credit card apps like paypal or venmo are common examples electronic payment services that function similarly to m pesa the bottom linem pesa was designed in 2007 to serve unbanked or underbanked residents of kenya and since has expanded to serve six other nations in africa it functions much like paypal or other common payment apps except that users of m pesa do not need to have a bank account through m pesa agents located throughout the countries where the service is available customers can deposit cash in exchange for equivalent funds that are immediately transferred to their electronic account the opposite also holds true customers can transfer electronic funds in exchange for cash | |
what is the macaulay duration | the macaulay duration is the weighted average term to maturity of the cash flows from a bond the weight of each cash flow is determined by dividing the present value of the cash flow by the price macaulay duration is frequently used by portfolio managers who use an immunization strategy macaulay duration can be calculated as follows macaulay duration t 1 n t c 1 y t n m 1 y n current bond price where t respective time period c periodic coupon payment y periodic yield n total number of periods m maturity value begin aligned text macaulay duration frac sum t 1 n frac t times c 1 y t frac n times m 1 y n text current bond price textbf where t text respective time period c text periodic coupon payment y text periodic yield n text total number of periods m text maturity value end aligned macaulay duration current bond price t 1n 1 y tt c 1 y nn m where t respective time periodc periodic coupon paymenty periodic yieldn total number of periodsm maturity value investopedia julie bangunderstanding the macaulay durationthe metric is named after its creator frederick macaulay macaulay duration can be viewed as the economic balance point of a group of cash flows another way to interpret the statistic is that it is the weighted average number of years that an investor must maintain a position in the bond until the present value of the bond s cash flows equals the amount paid for the bond factors affecting durationa bond s price maturity coupon and yield to maturity all factor into the calculation of duration all else being equal duration increases as maturity increases as a bond s coupon increases its duration decreases as interest rates increase duration decreases and the bond s sensitivity to further interest rate increases goes down also a sinking fund in place a scheduled prepayment before maturity and call provisions all lower a bond s duration calculation examplethe calculation of macaulay duration is straightforward let s assume that a 1 000 face value bond pays a 6 coupon and matures in three years interest rates are 6 per annum with semiannual compounding the bond pays the coupon twice a year and pays the principal on the final payment given this the following cash flows are expected over the next three years period 1 30 period 2 30 period 3 30 period 4 30 period 5 30 period 6 1 030 begin aligned text period 1 30 text period 2 30 text period 3 30 text period 4 30 text period 5 30 text period 6 1 030 end aligned period 1 30period 2 30period 3 30period 4 30period 5 30period 6 1 030 with the periods and the cash flows known a discount factor must be calculated for each period this is calculated as 1 1 r n where r is the interest rate and n is the period number in question the interest rate r compounded semiannually is 6 2 3 therefore the discount factors would be period 1 discount factor 1 1 03 1 0 9709 period 2 discount factor 1 1 03 2 0 9426 period 3 discount factor 1 1 03 3 0 9151 period 4 discount factor 1 1 03 4 0 8885 period 5 discount factor 1 1 03 5 0 8626 period 6 discount factor 1 1 03 6 0 8375 begin aligned text period 1 discount factor 1 div 1 03 1 0 9709 text period 2 discount factor 1 div 1 03 2 0 9426 text period 3 discount factor 1 div 1 03 3 0 9151 text period 4 discount factor 1 div 1 03 4 0 8885 text period 5 discount factor 1 div 1 03 5 0 8626 text period 6 discount factor 1 div 1 03 6 0 8375 end aligned period 1 discount factor 1 1 03 1 0 9709period 2 discount factor 1 1 03 2 0 9426period 3 discount factor 1 1 03 3 0 9151period 4 discount factor 1 1 03 4 0 8885period 5 discount factor 1 1 03 5 0 8626period 6 discount factor 1 1 03 6 0 8375 next multiply the period s cash flow by the period number and by its corresponding discount factor to find the present value of the cash flow period 1 1 30 0 9709 29 13 period 2 2 30 0 9426 56 56 period 3 3 30 0 9151 82 36 period 4 4 30 0 8885 106 62 period 5 5 30 0 8626 129 39 period 6 6 1 030 0 8375 5 175 65 period 1 6 5 579 71 numerator begin aligned text period 1 1 times 30 times 0 9709 29 13 text period 2 2 times 30 times 0 9426 56 56 text period 3 3 times 30 times 0 9151 82 36 text period 4 4 times 30 times 0 8885 106 62 text period 5 5 times 30 times 0 8626 129 39 text period 6 6 times 1 030 times 0 8375 5 175 65 sum text period 1 6 5 579 71 text numerator end aligned period 1 1 30 0 9709 29 13period 2 2 30 0 9426 56 56period 3 3 30 0 9151 82 36period 4 4 30 0 8885 106 62period 5 5 30 0 8626 129 39period 6 6 1 030 0 8375 5 175 65 period 1 6 5 579 71 numerator current bond price pv cash flows 1 6 current bond price 30 1 03 1 30 1 03 2 current bond price 1030 1 03 6 current bond price 1 000 current bond price denominator begin aligned text current bond price sum text pv cash flows 1 6 phantom text current bond price 30 div 1 03 1 30 div 1 03 2 phantom text current bond price cdots 1030 div 1 03 6 phantom text current bond price 1 000 phantom text current bond price text denominator end aligned current bond price pv cash flows 1 6 current bond price 30 1 03 1 30 1 03 2current bond price 1030 1 03 6current bond price 1 000current bond price denominator note that since the coupon rate and the interest rate are the same the bond will trade at par macaulay duration 5 579 71 1 000 5 58 begin aligned text macaulay duration 5 579 71 div 1 000 5 58 end aligned macaulay duration 5 579 71 1 000 5 58 a coupon paying bond will always have its duration less than its time to maturity in the example above the duration of 5 58 half years is less than the time to maturity of six half years in other words 5 58 2 2 79 years which is less than three years | |
what is a macro environment | a macro environment refers to the set of conditions that exist in the economy as a whole rather than in a particular sector or region in general the macro environment includes trends in the gross domestic product gdp inflation employment spending and monetary and fiscal policy the macro environment is closely linked to the general business cycle as opposed to the performance of an individual business sector investopedia paige mclaughlinunderstanding the macro environmentthe macro environment refers to how the macroeconomic conditions in which a company or sector operates influence its performance macroeconomics deals with aggregate production spending and the price level in an economy as opposed to individual industries and markets the amount of the macro environment s influence depends on how much of a company s business is dependent on the health of the overall economy cyclical industries are heavily influenced by the macro environment while basic staple industries are less influenced industries that are highly dependent on credit to finance purchases and business investments are strongly influenced by changes in interest rates and global financial markets the macro environment can also directly affect consumers ability and willingness to spend luxury goods industries and big ticket consumer goods can be highly impacted by fluctuations in consumer spending consumers reactions to the broad macro environment are closely monitored by businesses and economists as a gauge for an economy s health factors of the macro environmentanalyzing the macro environment is an important part of strategic management business analysts often conduct a pest political economic socio cultural and technological analysis to identify macro economic factors that currently affect or in the future may affect business some of the key factors composing the macro environment include the following gross domestic product gdp is a measure of a country s output and production of goods and services the bureau of economic analysis releases a quarterly report on gdp growth that provides a broad overview of the output of goods and services across all sectors 1 an especially influential aspect of gdp is corporate profits for the economy which is another measure of an economy s comprehensive productivity 2inflation is a key factor watched by economists investors and consumers it affects the purchasing power of the us dollar and is closely watched by the federal reserve the target rate for annual inflation from the federal reserve is 2 inflation higher than 2 significantly diminishes the purchasing power of the dollar making each unit less valuable as inflation rises 3employment levels in the united states are measured by the bureau of labor statistics which releases a monthly report on business payrolls and the status of the unemployment rate 45 the federal reserve also seeks to regulate employment levels through monetary policy stimulus and credit measures these policies can ease borrowing rates for businesses to help improve capital spending and business growth resulting in employment growth consumer spending made up 54 of the u s gdp in the second quarter of 2021 and is widely considered to be an important indicator of macroeconomic performance 6 slow growth or decline in consumer spending suggests a decline in aggregate demand which economists consider to be a symptom or even a cause of macroeconomic downturns and recessions the federal reserve s monetary policy initiatives are a key factor influencing the macro environment in the united states monetary policy measures are typically centered around interest rates and access to credit federal interest rate limits are one of the main levers of the federal reserve s monetary policy tools the federal reserve sets a federal funds rate for which federal banks borrow from each other and this rate is used as a base rate for all credit rates in the broader market the tightening of monetary policy indicates rates are rising making borrowing more costly and less affordable 7fiscal policy refers to government policy around taxation borrowing and spending high tax rates can reduce individual and business incentives to work invest and save the size of a government s annual deficits and total debt can influence market expectations regarding future tax rates inflation and overall macroeconomic stability government spending drives borrowing and taxation it is also widely used as a policy tool to try to stimulate economic activity during slow times and make up for sluggish consumer spending and business investment during recessions | |
what are the differences between a micro and macro environment | the micro environment refers to the factors within a company that impact its ability to do business micro environmental factors are specific to a company and can influence the operation of a company and management s ability to meet the goals of the business examples of these factors include the company s suppliers resellers customers and competition | |
what is a macro manager | a macro manager is a type of boss or supervisor who takes a more hands off approach and lets employees do their jobs with minimal direct supervision this style of leadership is referred to as macro management macro managers can be thought of by some employees as supervisors who do not give them enough support or feedback to do their jobs effectively while others may be glad to be trusted and left alone a macro manager is the opposite of a micromanager a supervisor who constantly looks over employees shoulders and is often perceived as controlling and overly critical understanding macro managersin managing a firm and its employees different management styles come into play micromanagement and macro managers take a birds eye view approach with top down management decisions that weigh aggregated metrics and aggregate performance adopting a macro management leadership style can include delegating authority and responsibilities while the manager focuses their attention on developing and executing the overall strategy for the team the term macro manager can also describe someone who runs a global macro hedge fund global macro managers need to have a broad knowledge base to understand big picture influences on investment performance in the global marketplace such influences include political events government policies and the way different countries central banks function george soros julian robertson and michael steinhardt are well known global macro managers advantages and disadvantages of macro managersmacro management may be seen as beneficial and suitable for the upper tiers of an organization s hierarchy as it grants employees room to act with more autonomy for example an executive leader of a division within an organization may task the staff who works under them to adhere to an overall strategic plan but make their own decisions on how best to execute that strategy likewise the president of a company may present broad ideas to the executive team they lead and rely on their individual expertise to take action rather than give them orders that cover the minutest details there can be drawbacks to working with a macro manager they may be distant and not directly informed about the day to day issues the team faces it can take time before they are made aware of problems or challenges the team must deal with furthermore a macro manager could be seen as little more as than an extra layer of bureaucracy with limited activity interest in the tasks at hand their minimal direct involvement with subordinates can be regarded as a lack of awareness or understanding of the work each employee is asked to perform this can affect the team s ability to achieve milestones and meet deadlines if the manager is not fully aware of obstacles that may impede the team s ability to take action | |
what is a macroeconomic factor | a macroeconomic factor is an influential fiscal natural or geopolitical event that broadly affects a regional or national economy macroeconomic factors tend to impact wide swaths of populations rather than just a few select individuals examples of macroeconomic factors include economic outputs unemployment rates and inflation these indicators of economic performance are closely monitored by governments businesses and consumers alike understanding macroeconomic factorsthe relationships between various macroeconomic factors are extensively studied in the field of macroeconomics while macroeconomics concerns the broad economy as a whole microeconomics narrows its realm of study to individual agents such as consumers and businesses and their respective economic behaviors and decision making patterns a macroeconomic factor may include anything that influences the direction of a particular large scale market for example fiscal policy and various regulations can impact state and national economies while potentially triggering broader international implications negative macroeconomic factorsnegative macroeconomic factors include events that may jeopardize national or international economies fears of political instability caused by a nation s involvement in a civil or international war are likely to heighten economic turbulence due to the reallocation of resources or damage to property assets and livelihoods unanticipated catastrophic events such as the 2008 united states economic crisis subsequently created a far reaching ripple effect resulting in tighter capital preservation requirements for banking institutions on a global scale 1 other negative macroeconomic factors include natural disasters such as earthquakes tornadoes flooding and brushfires the covid 19 pandemic is another example of a negative macroeconomic factor lockdowns triggered mass unemployment hefty government spending and supply shutdowns and later contributed to rapid inflation diseases such as covid 19 and the 2014 ebola virus can also be defined as macroeconomic factors neutral macroeconomic factorscertain economic shifts are neither positive nor negative rather the precise implications are determined by the intent of the action such as trade regulation across state or national borders the nature of the action in question such as enacting or rescinding a trade embargo will trigger myriad effects depending on the economy being influenced positive macroeconomic factorspositive macroeconomic factors include events that subsequently foster prosperity and economic growth within a single nation or a group of nations for example a decrease in fuel prices within the u s might drive consumers to purchase more retail goods and services moreover as the demand for goods and services increases national and international suppliers of those items will invariably enjoy increased revenues from the heightened consumer activity in turn increased profits may drive up stock prices macroeconomic factor cycleeconomies are often cyclic at the macroeconomic level as positive influences promote prosperity increased demand may trigger higher prices which may in turn suppress the economy as households restrict their spending as supply begins to outweigh demand prices may again dip leading to further prosperity until the next shift in economic supply and demand | |
what are some examples of macroeconomic factors | macroeconomic factors include inflation fiscal policy employment levels national income and international trade | |
what is the difference between macroeconomics and microeconomics | macroeconomics concerns the broad economy as a whole whereas microeconomics narrows down its focus to the study of individual agents such as consumers and businesses and the impact of their behavior and decision making microeconomics seeks to explain things such as how and why different goods have different values and how individuals can best maximize efficiency | |
how do macroeconomic factors affect a business | macroeconomic factors impact the whole population including businesses cyclical companies in particular are likely to be more affected by macroeconomic factors as their fate is more closely tied to the state of the economy the bottom linemacroeconomic factors are important and hard to ignore impacting economies and the state of our personal finances governments try to manage these factors and maintain stability however the economy still moves through boom and bust cycles and it generally pays to keep on top of this and be aware of what is going on to best protect and enhance your finances | |
what is macroeconomics | macroeconomics is a branch of economics that studies the behavior of an overall economy which encompasses markets businesses consumers and governments macroeconomics examines economy wide phenomena such as inflation price levels rate of economic growth national income gross domestic product gdp and changes in unemployment some of the key questions addressed by macroeconomics include what causes unemployment what causes inflation what creates or stimulates economic growth macroeconomics attempts to measure how well an economy is performing understand what forces drive it and project how performance can improve investopedia julie bangunderstanding macroeconomicsas the term implies macroeconomics is a field of study that analyzes an economy through a wide lens this includes looking at variables like unemployment gdp and inflation in addition macroeconomists develop models explaining the relationships between these factors these models and the forecasts they produce are used by government entities to aid in constructing and evaluating economic monetary and fiscal policy businesses use the models to set strategies in domestic and global markets and investors use them to predict and plan for movements in various asset classes properly applied economic theories can illuminate how economies function and the long term consequences of particular policies and decisions macroeconomic theory can also help individual businesses and investors make better decisions through a more thorough understanding of the effects of broad economic trends and policies on their own industries history of macroeconomicswhile the term macroeconomics dates back to the 1940s many of the field s core concepts have been subjects of study for much longer topics like unemployment prices growth and trade have concerned economists since the beginning of the discipline in the 1700s elements of earlier work from adam smith and john stuart mill addressed issues that would now be recognized as the domain of macroeconomics in its modern form macroeconomics is often defined as starting with john maynard keynes and his book the general theory of employment interest and money in 1936 in it keynes explained the fallout from the great depression when goods went unsold and workers were unemployed throughout the 20th century keynesian economics as keynes theories became known diverged into several other schools of thought before the popularization of keynes theories economists generally did not differentiate between microeconomics and macroeconomics the same microeconomic laws of supply and demand that operate in individual goods markets were understood to interact between individual markets to bring the economy into a general equilibrium as described by leon walras the link between goods markets and large scale financial variables such as price levels and interest rates was explained through the unique role that money plays in the economy as a medium of exchange by economists such as knut wicksell irving fisher and ludwig von mises macroeconomics vs microeconomicsmacroeconomics differs from microeconomics which focuses on smaller factors that affect choices made by individuals individuals are typically classified into subgroups such as buyers sellers and business owners these actors interact with each other according to the laws of supply and demand for resources using money and interest rates as pricing mechanisms for coordination factors studied in both microeconomics and macroeconomics typically influence one another a key distinction between microeconomics and macroeconomics is that macroeconomic aggregates can sometimes behave in very different ways or even the opposite of similar microeconomic variables for example keynes referenced the so called paradox of thrift which argues that individuals save money to build wealth on a microeconomic level however when everyone tries to increase their savings at once it can contribute to a slowdown in the economy and less wealth in the aggregate macroeconomic level this is because there would be a reduction in spending affecting business revenues and lowering worker pay limits of macroeconomicsit is also important to understand the limitations of economic theory theories are often created in a vacuum and lack specific real world details like taxation regulation and transaction costs the real world is also decidedly complicated and includes matters of social preference and conscience that do not lend themselves to mathematical analysis it is common to find the phrase ceterus paribus loosely translated as all else being equal in economic theories and discussions economists use this phrase to focus on specific relationships between variables being discussed while assuming all other variables remain fixed even with the limits of economic theory it is important and worthwhile to follow significant macroeconomic indicators like gdp inflation and unemployment this is because the performance of companies and by extension their stocks is significantly influenced by the economic conditions in which the companies operate likewise it can be invaluable to understand which theories are currently in favor and how they may be influencing a particular government administration such economic theories can say much about how a government will approach taxation regulation government spending and similar policies by better understanding economics and the ramifications of economic decisions investors can get at least a glimpse of the probable future and act accordingly with confidence macroeconomic schools of thoughtthe field of macroeconomics is organized into many different schools of thought with differing views on how the markets and their participants operate classical economists held that prices wages and rates are flexible and markets tend to clear unless prevented from doing so by government policy these ideas build on adam smith s original theories the term classical economists is not actually a school of macroeconomic thought but a label applied first by karl marx and later by keynes to denote previous economic thinkers with whom they disagreed keynesian economics was founded mainly based on the works of john maynard keynes and was the beginning of macroeconomics as a separate area of study from microeconomics keynesians focus on aggregate demand as the principal factor in issues like unemployment and the business cycle keynesian economists believe that the business cycle can be managed by active government intervention through fiscal policy where governments spend more in recessions to stimulate demand or spend less in expansions to decrease it they also believe in monetary policy where a central bank stimulates lending with lower rates or restricts it with higher ones keynesian economists also believe that certain rigidities in the system particularly sticky prices prevent the proper clearing of supply and demand the monetarist school is a branch of keynesian economics credited mainly to the works of milton friedman working within and extending keynesian models monetarists argue that monetary policy is generally a more effective and desirable policy tool to manage aggregate demand than fiscal policy however monetarists also acknowledge limits to monetary policy that make fine tuning the economy ill advised and instead tend to prefer adherence to policy rules that promote stable inflation rates the new classical school along with the new keynesians is mainly built on integrating microeconomic foundations into macroeconomics to resolve the glaring theoretical contradictions between the two subjects the new classical school emphasizes the importance of microeconomics and models based on that behavior new classical economists assume that all agents try to maximize their utility and have rational expectations which they incorporate into macroeconomic models new classical economists believe that unemployment is largely voluntary and that discretionary fiscal policy destabilizes while inflation can be controlled with monetary policy the new keynesian school also attempts to add microeconomic foundations to traditional keynesian economic theories while new keynesians accept that households and firms operate based on rational expectations they still maintain that there are a variety of market failures including sticky prices and wages because of this stickiness the government can improve macroeconomic conditions through fiscal and monetary policy the austrian school is an older school of economics that is seeing some resurgence in popularity austrian economic theories mainly apply to microeconomic phenomena however like the so called classical economists they never strictly separated microeconomics and macroeconomics austrian theories also have important implications for what are otherwise considered macroeconomic subjects in particular the austrian business cycle theory explains broadly synchronized macroeconomic swings in economic activity across markets due to monetary policy and the role that money and banking play in linking microeconomic markets to each other and across time macroeconomic indicatorsmacroeconomics is a rather broad field but two specific research areas dominate the discipline the first area looks at the factors that determine long term economic growth the other looks at the causes and consequences of short term fluctuations in national income and employment also known as the business cycle economic growth refers to an increase in aggregate production in an economy macroeconomists try to understand the factors that either promote or retard economic growth to support economic policies that will support development progress and rising living standards economists can use many indicators to measure economic performance these indicators fall into 10 categories 1superimposed over long term macroeconomic growth trends the levels and rates of change of significant macroeconomic variables such as employment and national output go through fluctuations these fluctuations are called expansions peaks recessions and troughs they also occur in that order when charted on a graph these fluctuations show that businesses perform in cycles thus it is called the business cycle the national bureau of economic research nber measures the business cycle which uses gdp and gross national income to date the cycle 2 the nber is also the agency that declares the beginning and end of recessions and expansions | |
how to influence macroeconomics | because macroeconomics is such a broad area positively influencing the economy is challenging and takes much longer than changing the individual behaviors within microeconomics therefore economies need to have an entity dedicated to researching and identifying techniques that can influence large scale changes in the u s the federal reserve is the central bank with a mandate of promoting maximum employment and price stability these two factors have been identified as essential to positively influencing change at the macroeconomic level to influence change the fed implements monetary policy through tools it has developed over the years which work to affect its dual mandates it has the following tools it can use 3the fed continuously updates the tools it uses to influence the economy so it has a list of many other previously used tools it can implement again if needed 4 | |
what is the most important concept in all of macroeconomics | the most important concept in all of macroeconomics is said to be output which refers to the total amount of good and services a country produces output is often considered a snapshot of an economy at a given moment | |
what are the 3 major concerns of macroeconomics | three major macroeconomic concerns are the unemployment level inflation and economic growth | |
why is macroeconics important | macroeconomics helps a government evaluate how an economy is performing and decide on actions it can take to increase or slow growth the bottom linemacroeconomics is a field of study used to evaluate overall economic performance and develop actions that can positively affect an economy economists work to understand how specific factors and actions affect output input spending consumption inflation and employment the study of economics began long ago but the field didn t start evolving into its current form until the 1700s macroeconomics now plays a large part in government and business decision making | |
what is magic formula investing | magic formula investing refers to a rules based disciplined investing strategy that teaches people a relatively simple and easy to understand method for value investing it relies on quantitative screens of companies and stocks and is designed to beat the stock market s average annual returns using the s p 500 to represent the market return put simply it works by ranking stocks based on their price and returns on capital magic formula investing tells you how to approach value investing from a methodical and unemotional perspective developed by joel greenblatt an investor hedge fund manager and business professor the formula applies to large cap stocks but doesn t include any small or micro cap companies understanding magic formula investingthe magic formula strategy was first described in the 2005 best selling book the little book that beats the market and in the 2010 follow up the little book that still beats the market by investor joel greenblatt greenblatt founder and former fund manager at gotham asset management is a graduate of the wharton school at the university of pennsylvania he is an adjunct professor at columbia university s business school in the book greenblatt outlines two criteria for stock investing stock price and company cost of capital instead of conducting fundamental analysis of companies and stocks investors use greenblatt s online stock screener tool to select the 30 to 50 top ranked companies in which to invest company rankings are based on investors who use the strategy sell the losing stocks before they have held them for one year to take advantage of the income tax provision that allows investors to use losses to offset their gains they sell the winning stocks after the one year mark in order to take advantage of reduced income tax rates on long term capital gains then they start the process all over again as greenblatt stated in a 2006 interview with barron s the magic formula is designed to help investors with buying good companies on average at cheap prices on average using this straightforward non emotional approach investors screen for companies that are good prospects from a value investing perspective magic formula investing only factors in large cap stocks and doesn t include small cap companies requirements for magic formula investingsince greenblatt s magic formula only applies to companies with market capitalizations greater than 50 million it excludes small cap stocks the remainder will all be large companies but excludes financial companies utility companies and non u s companies the following points outline how the formula works according to greenblatt his magic formula investing strategy has generated annual returns of 30 though they differ in their calculation of returns from the strategy a number of independent researchers have found that the magical formula investing approach has appeared to show good results when backtested compared to the s p 500 advantages and disadvantages of magic formula investingthe main advantage of the magic formula method is its simplicity you don t need to be a trained investment specialist or wall street prodigy to invest effectively all it takes is a few simple rules to find a basket of reliable investments it also reduces emotional or irrational decision making however contrary to its name there s nothing magical about the magic formula and it may not always be the best strategy some market tests of the formula have found lower than expected returns possibly due to changing market dynamics or the increased number of investors following greenblatt s method in addition some analysts claim to have improved the method by introducing additional variables such as debt equity ratios or dividend yields simple easy to follow rules suitable for every investor facilitates rational numbers based investing without emotion or stress shows better than market returns in multiple backtests returns do not always match the high figures which greenblatt achieved some analysts believe the method can be improved by introducing new variables or rebalancing more frequently | |
what does magic formula mean | magic formula investing refers to a rules based investing strategy that allows ordinary people to identify undervalued or outperforming companies it was first described by joel greenblatt in the little book that beat the market in 2005 | |
how do you use magic formula investing | magic formula investing uses a set of quantitative screens to eliminate certain companies and ranks the remainder in order of highest yield and returns by slowly building and rebalancing the portfolio every year it is possible to achieve reasonably high returns | |
how do you calculate magic formula | the key metrics for investing with the magic formula method are the earnings yield and return on capital earnings yield is determined by dividing each company s earnings before interest and taxes by the total value of the enterprise return on capital is determined by dividing the company s ebit by the sum of its net fixed assets and working capital | |
does magic formula investing work | the magic formula can no longer boast returns of a 30 compound annual growth rate but some studies nonetheless show favorable results a backtest of market performance between 2003 and 2015 found that the magic formula strategy had annualized returns of 11 4 compared with 8 7 from the s p500 this is clearly an outperformance of the benchmark wrote the author of the backtest but by nowhere near as much as the little book claims the bottom linethe magic formula is a simple rules based system designed to bring high returns within reach of the average investor by following a simple algorithmic approach the magic formula allows investors to easily identify outperforming or undervalued companies without letting emotions or instinct cloud their judgment while returns are now far lower than when the magic formula was first published the method can still beat the market especially with a few modifications correction feb 1 2023 a previous version of this article incorrectly stated the market capitalization and the number of companies investors can select in greenblatt s online stock screener it has been edited to reflect that the market capitalization starts at 50 million and investors can select 30 to 50 companies | |
what is magna cum laude | magna cum laude is a latin phrase that means with great praise and is an academic honor awarded to students who graduate with a grade point average gpa near the top of the class there is no set gpa to determine magna cum laude as the precise standards differ among colleges u s colleges commonly use three levels of academic distinction cum laude meaning with distinction magna cum laude or with great praise and summa cum laude or with highest distinction understanding magna cum laudethe awarding of latin honors the titles are referred to as latin honors because they retain their original latin forms is common in colleges and universities in the united states although not all bestow them many high schools also grant latin honors magna cum laude means with great praise and is awarded to students who have achieved academic excellence it is more prestigious than cum laude honors but less prestigious than summa cum laude the criteria by which each of these distinctions is achieved is set by each institution some use gpa while some calculate their honors according to class placement for example a student in the top 3 of the class might qualify for a magna cum laude distinction colleges may consider other factors in their decisions to grant magna cum laude status an institution might require that students complete an honors thesis to be eligible others seek letters of recommendation from faculty members attesting to students exceptional academic performance others stipulate that students must complete a certain number of advanced courses latin honors are most commonly awarded with bachelor s degrees students who graduate with honors may wear stoles of a distinct color or some other designation during commencement ceremonies and their honors may be cited when their names are read latin honors are generally included in a student s official transcript examples of magna cum laudemagna cum laude is generally awarded to a student who has earned a high gpa or some other mark of academic achievement but not the highest possible the criteria vary and may include some combination of the student s gpa class rank number of hours completed and recommendations from an academic department the academic thresholds for honors differ among academic institutions and even among programs at the same institution for example texas a m graduates must complete 60 credit hours while earning a gpa of 3 70 to 3 899 to earn a magna cum laude degree at some universities the gpa requirements for latin honors change every academic year because they are based on a percentage of the student s class some schools have substituted other titles such as with distinction in place of or in addition to the traditional latin terms for example a student graduating magna cum laude in engineering from the university of california los angeles must finish in the top 5 to 10 of the class after completing 90 credits for the 2023 2024 academic year students would need to achieve a grade point average of 3 934 for the 2022 2023 academic year the required gpa was 3 898 brown university does not use a student s gpa in its calculation since the school does not calculate gpas students are eligible for just one latin honor magna cum laude upon graduation a student achieves that honor by earning a high percentage of a grades and s for distinction marks for courses as well as meeting other criteria as determined by the school no more than 20 of a graduating class can earn magna cum laude honors the value of a magna cum laude degreethe relative value of a magna cum laude degree or another latin honor is difficult to judge as a factor in the job market it may mean a great deal to some employers and nothing to others nonetheless as new college graduates compete for their first jobs having a latin honor on a resume can t hurt it is of benefit to students competing for slots in graduate school the top law schools for example expect students to have achieved certain gpas as undergraduates the type of high marks that are often accompanied by latin honors | |
what grades do you need for magna cum laude | the academic thresholds for magna cum laude status differ among academic institutions but it generally means a very high gpa close to the highest possible which in most schools the highest gpa is 4 0 requirements are also subject to change and may differ among academic programs at the same institution grade point average gpa isn t always the only factor taken into consideration some colleges consider the number of hours completed and recommendations from an academic department some award latin honors to the top percentage in a class | |
is magna cum laude the highest | no in schools where latin honors are used the highest distinction is summa cum laude followed by magna cum laude and then cum laude | |
is graduating with honors important | graduating with honors notes that an individual has shown exemplary performance at school particularly in academics as most honors are given as a result of achieving a high grade point average this distinction can impress employers and indicate to them that an individual is capable of performing at the highest level it can also benefit students when applying for higher academic degrees it s important to note however that graduating with honors is not a guarantee of future success the bottom linegetting a degree is always a great achievement but a new graduate needs to stand out in a crowded field of job seekers or graduate school applicants latin honors such as a magna cum laude distinction indicate hard work and determination it could be the factor that gets you in the door for an interview | |
magnetic ink character recognition micr line | magnetic ink character recognition micr is a technology used primarily to identify and process checks the micr on a check is the string of characters that appears at the bottom left of the check it consists of three groups of numbers including the bank routing number the customer s account number and the check number the micr includes from left a nine character routing number a 12 character account number and a four character check number it is called a magnetic ink character recognition line in reference to the print technology that is used to enable a machine to read process and record information | |
how the magnetic ink character recognition micr line works | the magnetic ink character recognition line enables a computer to rapidly read and record numbers or other information from printed documents such as a personal check in this case that information is a check number routing number and account number the system was developed by the american bankers association aba in the late 1950s and was later recognized as an industry standard by the american national standards institute the micr number which is sometimes confused with just the account number is printed on the check using magnetic ink or toner less than an inch above the bottom of the document the magnetic ink allows a computer to read the characters even if they have been covered with signatures cancellation marks bank stamps or other marks micr lines help facilitate automatic check clearing when banks send their checks to central processing systems at the end of the day they are designed to be easily read by people as well so that check information can be communicated easily the numbers are usually printed in one of two specially designed fonts called e 13b and cmc 7 both are used worldwide with the e 13b used primarily in north america australia and the united kingdom the cmc 7 font is mainly used in europe and parts of south america micr check scannerevery check sent is processed by a clearinghouse or a bank or both they validate the check and finalize the transaction deducting the correct amount from one account and crediting it to another a single check may be processed several times at different banks and federal reserve centers part of that process is reading the identifying information on the check the micr line mechanized that process a scanner or reader sorter computerized machine is used to process the information magnetically printed on the checks including routing number account number and check number during the clearing process a check may be read several times at extremely high speeds a single reading takes less than 1 1000ths of a second according to troy group a producer of micr adapted printers and related products 1micr is the reason why checks are so uniform in their format the layout of the check and the position of the data on it must be rigidly placed so that it can be read by the machines special considerationswhile magnetic ink character recognition was first used to print information on checks the technology has been adapted to other applications a variety of financial documents in the united states are encoded with micr technology credit card invoices direct mail coupons used for rebates and negotiable orders of withdrawal nows may also use the technology benefits of the micr lineone of the benefits of the magnetic ink character recognition line is its ability to facilitate the use of a routing number to process checks and deduct the payment amounts a routing number or routing transit number is a nine digit numerical code which banking and other financial institutions use to clear funds and process checks the routing number identifies the bank branch that holds the account from which funds are to be drawn wire transfers and direct deposits often rely on routing numbers as well combating fraud is a constant battle in the financial services industry the definition of fraud is an intentionally deceptive action that is designed to provide the perpetrator with an unlawful gain a range of fraud types exists including tax fraud credit card fraud wire fraud securities fraud and bankruptcy fraud the magnetic ink character recognition line makes some forms of financial fraud difficult by using tamper proof magnetic ink and unique fonts thus micr makes it difficult to alter checks check altering generally entails changing the name of the payee or the amount of the check or both section 3 407 of the uniform commercial code ucc a set of business laws that regulate financial contracts breaks down the term alteration even further with nine articles dealing with separate aspects of banking and loans 2for instance a fraudster may attempt to cash a photocopied check through a teller at a bank branch the photocopied micr line immediately alerts the teller that the check is fake since micr technology helps detect and prevent fraud banks and other financial institutions use it to minimize losses the routing number account number and check number combine to create a unique identifier for each check frequently asked questions | |
what is a micr number | a magnetic ink character recognition line micr is a line of characters on a check printed with a unique ink that allows the characters to be read by a reader sorter machine introduction of the micr reader sorter process allowed check processing to be automated while making it more difficult to counterfeit checks | |
how is micr used in banks | the micr system has been in use since the late 1950s it was a notable improvement because it allowed for the mechanization of check processing while making it more difficult to commit check fraud banks around the globe adopted the system 3this is why the format of bank checks is so uniform it has to be in order for the readers to read the micr numbers | |
what is micr data on a check | the string of characters at the bottom left of a check identifies the bank branch that it is issued from the account number of the payer and the number of the account holder s check in a consecutive series from left the line displays the following information it looks like this 000000000 000000000000 0000the bottom linemagnetic ink character recognition is still around some 70 years after it was developed because it solved two big problems faced by banks the processing of checks had to be mechanized and fraud had to be made more difficult its three components including a routing number an account number and a check number together are a unique identifier of a check and the person who signed it just as importantly it is printed using a special ink and custom fonts that make fakes difficult if not impossible to create | |
what is main street | main street is a colloquial term used by economists to refer collectively to america s independent small businesses it gets its name from a common name for the principal commercial street of small towns across the country in england the equivalent term is high street in another context the term wall street versus main street with the former referring to big business and high finance nevertheless those involved in big business and high finance spend a considerable amount of time trying to understand what products fashions brands and trends succeed or fail on main street more generally the term main street has been used to refer to small town american traditions or historic business districts in the finance world the time main street is used to describe small and mid sized businesses as part of a local economy understanding main streetmain street may be the most common street name in the united states according to the u s small business association as of march 2020 there are 31 7 million small businesses the backbone of local main streets across america in the united states 1 the coronavirus pandemic hit small businesses hard so while the data isn t out as of september 2021 some small businesses in the 2020 count may not have survived 2in the financial world main street is often cited as the opposite of wall street it may be used to describe the individual small investor as opposed to the professional securities trader this can lead to some very unpleasant attitudes on one side or both for example some wall street traders stereotype main street investors as dabblers in a game they can t understand main street investors may see wall street traders as crooks with a void where their souls are supposed to be the unfortunate fact is that both sides have a high degree of dependence on the other wall street depends on individual investors to generate the capital and fees that keep the lights on main street needs wall street to earn a better rate of return than a savings account or a municipal bond can offer unfortunately this mutual dependence doesn t resolve the conflicts between the two the term main street may refer to an independently owned business as opposed to a global corporation types of main street businesses | |
when a business is described as a main street shop it usually is a brick and mortar store located on the main thoroughfare or block in a village or town a main street business is not a chain store but rather a store that provides goods or services in a personalized fashion main street stores often cater to tourists and locals especially in picturesque locations | of course small businesses run the gamut and include pharmacies hair salons non chain greengrocers clothing boutiques coffee shops book stores bakeries and specialty stores like toy shops 3the pandemic contributed to the decline of many main street businesses such as restaurants and bars however as the economy slowly bounces back in 2021 in particular coffee shops and breweries represent a sizeable chunk of main street businesses as the craft industry continues to grow 45main street vs wall streetmain street may also describe a small independent investment company instead of one globally recognized wall street investment firm wall street firms tend to serve institutions and large investors with multi million dollar assets main street firms provide personalized financial planning and investing services to professionals and families in their locale some people insist that what s good for wall street is bad for main street and vice versa for example regulations designed to protect main street investors are seen as hampering wall street s ability to innovate and profit on the other hand wall street compensation practices and trading strategies encourage short term results and greater risk taking of course when wall street and main street do work together things can go wrong this was seen in the financial crisis that hit in 2008 when lenders and borrowers on main street created a bubble in housing prices that burst on wall street the result was called the great recession so we want main street and wall street to get along but perhaps not too well during a crisis wall street valuations may soar while main street business owners may struggle for example when the pandemic hit in march 2020 people flocked online to order food home goods medical supplies and entertainment during this time many main street restaurants and stores were shuttered or only allowing take out or a few masked customers in at a time corporations like walmart and target found themselves making money due to customers buying in bulk and having items delivered small stores could not compete especially shops in tourist towns or neighborhoods where storeowners livelihoods depend on visitors from out of town even retailers in villages and towns with a robust local economy struggled against competition from big box stores and amazon 6suppose you want to support main street beyond spending your money locally in that case you can invest in main street s smaller entrepreneurs and businesses directly now through peer to peer lending and crowdfunding sites for example you can invest money via an investment platform like mainvest which supports brick and mortar main street businesses or localstake a crowdfunding platform where you can invest in small businesses as well 78main street investments are somewhat different from traditional wall street investment vehicles like stocks etfs or mutual funds but the same rules apply there is a more inherent risk in investing in small start ups or businesses versus putting investment dollars in more robust stock portfolios with large corporations small businesses like a toy or book store barbershop or local deli are not listed on the stock market but you can invest in them via crowdfunding for peer to peer lending heavy hitters like amazon walmart apple and google are driving the stock market which can rise even your neighborhood main street shops are going out of business 9small business owners should investigate the numerous grants complied and listed by the national main street center main street and government programsthere are government programs designed specifically to support main street businesses during the covid 19 pandemic on april 9 2020 the government created the main street lending program to support small to mid sized nonprofits and businesses with 600 billion in loans 10in addition to federal loan programs there are also grants and loans available to small business owners via nonprofits one of these is main street america an off shoot program of the nonprofit national main street center inc a subsidiary of the national trust for historic preservation on its website main street america offers a compilation of private grants crowdsourcing peer to peer lending and federal services and funding opportunities available to main street businesses 11the bottom linesmall business is imperative for main streets to flourish in the u s because strong local economies usually indicate a better quality of life especially in small towns while the covid 19 pandemic hit small businesses hard government loan programs provided much needed support thriving local economies whether in small rural towns or large urban areas offer a healthier environment for communities to flourish investing in main street isn t just about money and it can be as simple as shopping local regularly which contributes to the revitalization of towns and city neighborhoods | |
what are maintenance expenses | the term maintenance expense refers to any cost incurred by an individual or business to keep their assets in good working condition these costs may be spent for the general maintenance of items like running anti virus software on computer systems or they may be used for repairs such as fixing a car or machinery these expenses are in addition to the actual purchase price of an asset so individuals and companies should be able and willing to foot the bill in order to keep their assets in running order understanding maintenance expensesconsumers who purchase assets should expect to pay maintenance expenses at some point in the future if they want to use them over a period of time as mentioned earlier these costs are incurred in order to keep an individual or company s assets in good working order | |
how much an individual pays in maintenance expenses depends on the type of asset and how often upkeep is required and performed individuals may incur maintenance costs for homes automobiles appliances and electronics while businesses pay for maintenance on their fixed assets vehicles equipment facilities and their technology | keeping up to date with regular maintenance can keep costs down because the asset is serviced on a timely basis neglecting assets and waiting until the last minute to service them may result in higher maintenance costs if the asset isn t maintained at all the owner may have to replace it altogether special considerationsconsumers should consider the initial price tag as well as the item s ongoing maintenance expenses when they purchase an item that requires upkeep this is why it s always a good idea for any consumer to set some money aside for maintenance expenses failure to do so may result in financial distress when it comes time to pay for these charges in the future it s always a good idea to have money set aside for the regular maintenance of your assets types of maintenance expensesas mentioned above maintenance expenses depend on the type of asset held maintenance expenses for homes include lawn care plumbing electrical and roof repairs as well as replacement of worn out appliances homeowners must also pay premiums for hazard insurance 1 this expense protects the owner from damage to the home from natural events like severe storms fires tornados and earthquakes most of the maintenance expenses for a rental property are the landlord s responsibility snow removal sewage trash pickup lawn care as well as the sidewalks windows and any exterior expense falls to the landlord to pay if the apartment or rental home is furnished any replacement or repair of the furniture is the landlord s responsibility cleaning or replacement of any carpeting as well as painting is also paid for by the landlord 23government regulations require landlords to maintain certain safety and living standards for example the heat in an apartment building must meet minimum standards the infrastructure such as heating and ventilation must be adequately maintained by the landlord 4 some of the upkeep and maintenance may fall on the tenant the rental agreement should define what expenses are the renter s responsibility monthly fees are common for people who own condominiums condo fees can range from 50 to 1 000 depending on the property building and location if the building has a concierge swimming pool tennis courts or gym those costs are built into the monthly condo fee buyers who want maintenance free living should consider the monthly fees when calculating their affordability and the potential mortgage payment for the condominium if for example the mortgage payment is 1 500 per month while the condo fee is 600 per month the condo fee represents nearly 30 of the total monthly payments to live there example of maintenance expensesowning a vehicle requires regular maintenance oil changes tire rotation and engine flushes owners can enjoy their vehicles by keeping up to date with and paying for these expenses on a timely and regular basis people who don t maintain their vehicles or wait too long may have to pay more in maintenance and may even have to pay the replacement cost for a new vehicle | |
what is maintenance margin | maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made it is currently set at 25 of the total value of the securities in a margin account as per financial industry regulatory authority finra requirements 1understanding maintenance marginalthough finra requires a 25 minimum maintenance margin many brokerage firms may require that as much as 30 to 40 of the securities total value should be available 2 maintenance margin is also called a minimum maintenance or maintenance requirement a margin account is an account with a brokerage firm that allows an investor to buy securities including stocks bonds or options all with cash loaned by the broker all margin accounts or purchasing securities on margin have strict rules and regulations the maintenance margin is one such rule 2 it stipulates the minimum amount of equity the total value of securities in the margin account minus anything borrowed from the brokerage firm that must be in a margin account at all times as long as the investor holds on to the securities purchased so if an investor has 10 000 worth of equity in their margin account they must maintain a minimum amount of 2 500 in the margin account if the value of their equity increases to 15 000 then the maintenance margin also rises to 3 750 the investor is hit with a margin call if the value of securities falls below the maintenance margin margin trading is regulated by the federal government and other self regulatory agencies in an effort to mitigate potentially crippling losses for both investors and brokerages there are multiple regulators of margin trading the most important of which are the federal reserve board and finra 31margin accounts vs maintenance marginsinvestors and brokerage firms must sign an agreement before opening a margin account according to the terms of the agreement set forth by finra and the federal reserve board the account requires a minimum margin be met before investors can trade on the account the minimum or initial margin must be at least 2 000 in cash or securities 4the federal reserve board s regulation t reg t sets a limit on how much an investor can borrow which is up to 50 of the price of the security purchased 1 some brokers require more than a 50 deposit from the investor 5once an investor buys a security on margin the maintenance margin goes into effect with finra requiring that at least 25 of the total market value of the securities be in the account at all times 1 still many brokers can require more as stipulated in the margin agreement 2if the equity in a margin account falls below the maintenance margin the broker issues a margin call which requires that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities in order to fulfill the maintenance amount the broker reserves the right to sell the securities in a margin account sometimes without consulting the investor to meet the maintenance margin typically the investor will receive a warning from their broker first and only upon continued failure to pay the margin call will action be taken a federal call is a special kind of margin call issued by the federal government 6maintenance minimums also eliminate some of the risk to the brokerage in case the investor defaults on the loan initial and maintenance account limits maintenance and reg t margin calls and finra regulations all exist because margin trading has the potential to incur skyrocketing gains as well as colossal losses such losses are a huge financial risk and if left unchecked can unsettle the securities markets as well as potentially disrupt the entire financial market | |
what is a majority shareholder | a majority shareholder is a person or entity that owns and controls more than 50 of a company s outstanding shares as a majority shareholder a person or operating entity has a significant amount of influence over the company especially if their shares are voting shares voting shares give a shareholder permission to vote on different corporate decisions such as who should be on the company s board of directors | |
when a majority shareholder is in possession of voting shares the person or entity may hold significant sway over the direction of the company | understanding the majority shareholdera majority shareholder is often the founder of the company in the case of long established businesses the majority shareholder may also be the descendants of the founder by controlling more than half of the voting interest the majority shareholder is a key stakeholder and influencer in the business operations and strategic direction of the company for example it may be in their power to replace a corporation s officers or board of directors however not all companies have a majority shareholder and it is more common for private companies to have majority stakeholders than public companies for those companies that do have a majority shareholderit s also true that the role of a majority shareholder can look very different from one company to another some remain very involved in daily operations while others leave management to company executives the majority shareholder of a company may or may not be a member of upper management such as the chief executive officer ceo this scenario is more likely in a smaller company with a limited number of shares in larger firms like those with a market capitalization in the billions of dollars the firm s investors may include other institutions that hold a larger number of shares majority shareholders and buyoutsmajority shareholders who seek to exit a business or dilute their position may make overtures to their competition or to private equity firms with the objective of selling their stake or the entire company for a profit in order for a buyout to occur an outside entity must acquire over 50 of a target company s outstanding shares or have the votes of at least 50 of the current shareholders who will vote in favor of the buyout a buyout is the acquisition of a controlling interest in a company it is typically used synonymously with the term acquisition even though a majority shareholder may hold more than half of company shares they may not have the authority to authorize a buyout without additional support depending on stipulations in the company s bylaws in cases where a supermajority is required for a buyout the majority shareholder can be the sole deciding factor but only in cases where they hold enough stock to meet the supermajority requirement and the minority shareholders do not have additional rights to block the effort minority shareholder rights can include the declaration of a derivative action or fraud these actions effectively block the completion of a buyout if the minority shareholders believe the terms of the buyout are unfair and they wish to exit the targeted business they can exercise appraisal rights this allows a court to determine if an offered share price is fair if the offer is in fact found to be unfair the court can also compel the business initiating the buyout to offer a specified price example of a majority shareholdermajority shareholders are often companies that own a controlling stake in many companies for example the company berkshire hathaway of which warren buffett is the ceo has a controlling interest in many other companies berkshire hathaway is a majority shareholder in other companies but berkshire hathaway itself also has shareholders however berkshire hathaway doesn t have a majority shareholder because most companies that have majority shareholders are very small there are not very many companies that are household or well known that have a majority shareholder because these companies tend to be larger one exception is dell technologies inc according to a dell technologies proxy filing in may with the u s securities and exchange commission sec micheal dell controls about half of the company s equity 52 | |
what is a make or buy decision | a make or buy decision is an act of choosing between manufacturing a product in house or purchasing it from an external supplier also referred to as an outsourcing decision a make or buy decision compares the costs and benefits associated with producing a necessary good or service internally to the costs and benefits involved in hiring an outside supplier for the resources in question to compare costs accurately a company must consider all aspects regarding the acquisition and storage of the items versus creating the items in house which may require the purchase of new equipment as well as storage costs understanding a make or buy decisionregarding in house production a business must include expenses related to the purchase and maintenance of any production equipment and the cost of production materials costs to make the product can include the additional labor required to produce the items which takes the form of wages and benefits storage requirements within the facility holding costs overall and the proper disposal of any remnants or byproducts from the production process buy costs related to purchasing the products from an outside source must include the price of the good itself any shipping or importing fees and applicable sales tax charges additionally the company must factor in the expenses relating to the storage of the incoming product and labor costs associated with receiving the products into inventory it also includes signing any contracts with suppliers that might require the company to be locked in to certain deals for a certain period of time in a make or buy decision the most important factors to consider are part of quantitative analysis such as the associated costs of production and whether the business can produce at required levels choosing make or buythe results of the quantitative analysis may be sufficient to make a determination based on the approach that is more cost effective at times the qualitative analysis addresses any concerns a company cannot measure specifically factors that may influence a firm s decision to buy a part rather than produce it internally include a lack of in house expertise small volume requirements a desire for multiple sourcing and the fact that the item may not be critical to the firm s strategy a company may give additional consideration if the firm has the opportunity to work with a company that has previously provided outsourced services successfully and can sustain a long term relationship if a firm is going to buy or outsource it s essential that they work with a company that they can rely on for the long term similarly factors that may tilt a firm toward making an item in house include existing idle production capacity better quality control or proprietary technology that needs to be protected a company may also consider concerns regarding the reliability of the supplier especially if the product in question is critical to normal business operations the firm should also consider whether the supplier can offer the desired long term arrangement if that is what it requires | |
why choose | if a company is already in business there may be a point when certain situations arise that will cause a company to pause and consider which direction it should proceed in whether it should buy or make the parts or products it needs some of these events could be a trusted supplier shutting down an increase or decrease in demand for the product or a possible path for new opportunities at these junctions management will have to consider the advantages of either making or buying the product which can also be outside of a cost benefit analysis will one decision lead to economies of scale to a possible new product line or a restructuring of the core business depending on the business and its place in the market there will be both advantages and disadvantages of continuing down the same path or forging a new one | |
what is make to order mto | the term make to order mto refers to a business production strategy that typically allows consumers to purchase products that are customized to their specifications as such make to order is a manufacturing production process in which the production of an item begins only after a confirmed customer order is received mto is part of the pull through production process which occurs when companies produce goods based on actual consumer demand it is common in certain industries such as the aircraft and automotive industries understanding make to order mto as noted above make to order is a business strategy used by manufacturers to meet consumer demand it means that a company only manufactures the end product once the customer places the order while this creates additional wait time for the consumer to receive the product it does allow for more flexible customization when compared to purchasing directly from retailers shelves this strategy is a pull through production or pull type supply chain operation because products are only made when strong customer demand exists this production model is commonly in the assembly industry where the quantity needed to be produced per product specification is one or only a few this includes specialized industries such as aircraft and vessel production automotive and construction among others mto is also appropriate for highly configured products such as computer servers automobiles bicycles or products that are very expensive to keep inventory here s how the mto process works some companies adopt the mto production system to manage inventory levels and provide their customers with increased customization the mto strategy relieves the problems of excess inventory that are common with other types of production strategies dell is an example of a business that uses the mto production strategy wherein customers can order a fully customized computer online and receive it in a couple of weeks make to order is also known as made to order or mass customization advantages and disadvantages of mtothe main advantage of the mto system is the ability to fulfill an order with the exact product specification required by the customer if the company can deliver the product just as the customer wants they are more likely to remain loyal to the brand sales discounts and finished goods inventory are also reduced and stock obsolescence is managed as such it ensures that companies can get full price for their goods it also reduces waste and helps promote efficiency one of the main drawbacks of make to order management is the timeliness of the customization process if products are already on the shelf as with mts then a customer doesn t have to wait until the product is made assembled and delivered to spec cost is also a factor pre made and available products are all alike and so manufacturing costs are lowered due to economies of scale mto on the other hand tends to be more expensive for the consumer since it involves customizable parts and finishes meets specific needs of customersreduces waste and promotes efficiencylonger production processcustomization is expensivemake to order mto vs make to stock mts vs assemble to order ato traditional strategies produce products and stock them as inventory until a customer buys them this is known as make to stock mts unlike mto which is meant to reduce waste and be more efficient mts may be prone to wastage and obsolescence as inventory sits on shelves waiting to be purchased this problem is particularly acute in an industry like technology where advancement is quick and the problem of obsolete inventory could quickly arise the mts method is a theoretically great way for companies to prepare for increases and decreases in demand however inventory numbers and production are derived by creating future demand forecasts based on past data but there is a high likelihood that the forecasts will be off even if just slightly this means that a company may be stuck with too much inventory and too little liquidity this is the main drawback of the mts method of production inaccurate forecasts will lead to losses stemming from excess inventory or stockouts excess inventory can quickly become obsolete in fast paced sectors like electronics or computer tech mto is similar to assemble to order ato ato is a business production strategy where products ordered by customers are customizable to a certain extent and produced quickly the ato strategy requires that the basic parts of the product are not assembled instead they are already manufactured and ready for use once an order is received the parts are assembled quickly and sent to the customer costs vary in the ato strategy where assembly costs are negligible while the cost of the components can be substantial this manufacturing process is common in the electronics industry which involves computer production consumers and computer companies may design specific devices using customized components like monitors and keyboards for an mto system to succeed it should be coupled with proactive demand management companies should also understand that the mto system is not appropriate for all types of products such as goods for everyday use example of mtothe mto strategy is not suitable for every product or industry everyday goods and services which are meant for mass consumption are not manufactured in an mto process because of the intricacies and costs involved mto tends to be used in certain specialized industries including mto is very common in property development many real estate developers buy large plots of land and sell them to consumers builders allow home buyers to make customizations in the design and construction of their homes this includes floor plans architectural designs and the use of fixtures for instance companies like pulte homes offer customized homes in many states across the u s 1 | |
what steps should companies take to implement a make to order strategy | a make to order strategy is a business strategy that companies use to customize products according to customer demand to meet their needs to put this strategy in place companies must | |
what industries commonly use make to order strategies | make to order business strategies allow customers to order products from companies that are manufactured to their needs this strategy is common in various industries including aircraft automotive construction computer hardware and furniture for instance an automotive manufacturer may allow consumers to customize the design of their vehicles | |
what are the pros and cons of make to order products | companies can generate interest and brand loyalty by offering consumers make to order products this means they can meet the needs of customers who are willing to pay more money for a product they want it also helps reduce waste and promotes efficiency by using only those materials that are needed in the production process but there are drawbacks the most notable being the time it takes to produce customized goods and the high cost involved in the production process the bottom linemost of the goods and services we use each day are meant for mass consumption but if you have the money you can procure products that are manufactured in the make to order process this involves customizing goods according to a consumer s needs things like airplanes homes high end fashion cars and computers may be made to the unique specifications of consumers while it can help companies make more money and reduce waste it often costs more and consumers must wait longer to have their orders fulfilled | |
what is make to stock mts | make to stock mts is a traditional production strategy that is used by businesses to match inventory with anticipated consumer demand instead of setting a production level and then attempting to sell goods a company using mts would estimate how many orders its products could generate and then supply enough stock to meet those orders | |
how make to stock mts works | the make to stock method requires an accurate forecast of demand to determine how much stock it produces if demand for the product can be estimated accurately the mts strategy is an efficient choice for production 1in theory the mts method is a way for a company to prepare for increases and decreases in demand however inventory numbers and consequently production are typically obtained through the creation of future demand forecasts that have a basis in past data | |
should the forecast be even slightly off the company may find they have too much inventory and limited liquidity or too little inventory and unmet profit potential this possibility of error is the primary disadvantage of using the mts system for production wrong information can lead to excess inventory stockouts unavailable inventory and revenue losses it can also lead to an inability to meet demand which reduces income potential in fast paced sectors such as electronics or computer tech excess inventory can quickly become obsolete 1 | also an mts approach requires a business to redesign operations at specific times instead of keeping a steady level of production year round this regular adjustment can be costly and the increased costs must either pass on to the consumer or be absorbed by the company the typical unpredictability of the economy and business cycles make mts challenging for any company but the strategy becomes particularly complicated when a business operates in a sector that experiences cyclical or seasonal sales cycles alternatives to make to stock mts common alternative production strategies that avoid the downsides of mts include make to order mto and assemble to order ato both tie production to demand but in the case of mto the output of an item begins after the company receives a valid customer order ato is something of a compromise between mts and mto basic parts are constructed in advance but a finished product is not created until a valid order comes in example of make to stock mts manufacturing companies often use the mts method to prepare for periods of high production for example many retailers such as target generate most of their sales in the fourth quarter of the year for the manufacturing companies supplying these retailers a majority of their production has to come in the second and third quarters of the year to prepare for the increases in demand 2using the mts production method let s say that the lego group maker of the popular lego bricks and other toys looks back at its previous years and surmises based on past data that demand will increase by 40 in the fourth quarter versus the third quarter to prepare the manufacturer produces 40 more of its toys in july august and september to meet the demand forecasts for the fourth quarter additionally during the fourth quarter lego looks at past numbers to see how much demand will decline from the end of the year to the first quarter of the new year reducing production accordingly if lego is adopting an mto strategy it will not increase the production of say its lego bricks by 40 until and unless target sent in a larger order for them if it were taking an ato approach it might have the increased bricks made and ready but wouldn t put together complete packaged kits of them until it received target s order this way the risk of an inaccurate demand forecast is mitigated as both lego and target share it | |
what are the benefits of make to stock | one of main benefits of the make to stock mts production strategy is the ability to produce inventory based on anticipated consumer demand mts allows a company to avoid having to much or too little inventory | |
what are the drawbacks of make to stock | in order for make to stock to be an effective strategy accurate forecasts are a must an inaccurate forecast can result is excess inventory or the inability to meet demand | |
what is an example of make to stock | the make to stock strategy might be used by companies that produce goods that tend to be particularly popular during the holiday season for instance a toy manufacturer would forecast consumer demand and produce products accordingly the bottom linemake to stock is a traditional manufacturing strategy that matches inventory with forecasted consumer demand the effectiveness of the mts approach is entirely reliant on the ability of a company to correctly predict the future demand customers will have for its products if a forecast misses the mark a company can be left with excess inventory or not enough which can negatively impact its bottom line | |
what is a make whole call | a make whole call provision is a type of call provision on a bond allowing the issuer to pay off remaining debt early the issuer typically has to make a lump sum payment to the investor the payment is derived from a formula based on the net present value npv of previously scheduled coupon payments and the principal that the investor would have received understanding make whole callsmake whole call provisions are defined in the indenture of a bond these provisions began to be included in bond indentures in the 1990s issuers typically don t expect to have to use this type of call provision and make whole calls are rarely exercised however the issuer may decide to utilize its make whole call provision on a bond then investors will be compensated or made whole for the remaining payments and principal from the bond as noted within the bond s indenture in a make whole call the investor receives a single payment for the npv of all future cash flows of the bond that typically includes the remaining coupon payments associated with the bond under the make whole call provision it also includes the par value principal payment of the bond a lump sum payment paid to an investor in a make whole call provision is equal to the npv of all these future payments the payments were agreed upon in the make whole call provision within the indenture the npv is calculated based on the market discount rate make whole calls are typically exercised when interest rates have decreased therefore the discount rate for the npv calculation is likely to be lower than the initial rate when the bond was offered that works to the benefit of the investor a lower npv discount rate can make the make whole call payments slightly more expensive for the issuer the cost of a make whole call can often be high so such provisions are rarely invoked bonds are less likely to be called in a stable interest rate environment call provisions were more of an issue when interest rates generally declined between 1980 and 2008 make whole call provisions can be expensive to exercise because they require a full lump sum payment consequently companies that utilize make whole call provisions usually do so because interest rates have fallen when rates have decreased or are trending lower a company has an added incentive to exercise make whole call provisions if interest rates have dropped then issuers of corporate bonds can issue new bonds at a lower rate of interest these new bonds require lower coupon payments to their investors advantages of make whole callsmake whole calls are better for investors than standard call provisions with a standard call the investor would only receive the principal in the event of a call with a make whole call the investor gets the npv of future payments there is actually a case where a make whole call provision provides no benefits consider an investor who buys a bond at par value when it is first issued if the bond is immediately called then the investor gets the principal back and can reinvest it at the same prevailing open market rate the investor does not need any additional payments to be made whole the advantages of make whole calls are most apparent after interest rates fall once again we can start with an investor who bought a bond at par value when it was first issued this time suppose interest rates decline from 10 to 5 after the investor holds a 20 year bond for ten years if this investor receives only the principal back the investor will have to reinvest at the lower 5 rate in this case the npv of future payments provided by a make whole call provision compensates the investor for having to reinvest at a lower rate investors in the secondary market are also aware of the value of make whole call provisions all other things being equal bonds with make whole call provisions will typically trade at a premium to those with standard call provisions investors pay less money for bonds with standard call provisions because they have more call risk | |
what is malpractice insurance | malpractice insurance is a type of professional liability insurance purchased by healthcare professionals this insurance coverage protects healthcare providers against patients who file suits against them under the complaint that they were harmed by the professional s negligence or intentionally harmful treatment decisions malpractice insurance also covers the death of a patient understanding malpractice insurancemost medical doctors will need malpractice insurance sometime during their professional career and for good reason a study by johns hopkins university found medical errors to be the third leading cause of death in the united states behind heart disease and cancer medical negligence can happen during diagnosis during treatment or as part of the advice given for treatment after an illness approximately 250 000 deaths in the u s arise from medical errors every year 1according to government data roughly 10 800 medical malpractice claims were paid in 2022 2 nearly one third of physicians report they have been sued at least once in their careers 3 this underlines the importance of having malpractice insurance for a healthcare professional medical malpractice insurance requirements vary by state some states specifically require insurance while others require a minimum amount of coverage to participate in state programs designed to assist them with claims 4medical malpractice insurance premiums are usually based on the physician s specialty and geographic location not on claims experience this means that even if a physician has never been sued they can end up paying extremely high premiums the premiums can be high because of such factors as the amount of coverage needed claims severity claims frequency location of practice and laws in the area investopedia lara antaltypes of malpractice insurancethere are many options for procuring malpractice insurance in the most basic form an insurance policy can be purchased for an individual or group by a private insurer individual or group policies can also be purchased by a medical risk retention group rrg an rrg is a group of medical professionals organized to provide malpractice insurance another option for obtaining malpractice insurance is under the coverage plan of an employer such as a hospital individuals who work in federal health centers do not need to obtain malpractice insurance as federal law provides these workers immunity from civil lawsuits 5 insurance can often also be obtained through state and local agencies if the situation deems it necessary the two types of policies that a healthcare professional can purchase are a claims made policy or an occurrence policy a claims made policy only covers claims if the policy was in effect when the treatment occurred and when the lawsuit was made an occurrence policy covers any claim that was made on a treatment that occurred while the policy was in effect even if the policy has since expired the types of costs covered under a malpractice policy are wide they include all legal fees such as lawyer fees settlement and arbitration costs medical damages and punitive damages proving a malpractice lawsuitin a medical malpractice lawsuit the plaintiff needs to prove a medical professional violated the general standard of care of a patient as defined by the medical community in order to be successful in a medical malpractice lawsuit three things generally need to happen | |
what is a managed account | a managed account is an investment account that is owned by an investor but managed by somebody else the account owner can either be an institutional investor or an individual retail investor a professional money manager hired by the investor then oversees the account and the trading activity within it armed with discretionary authority over the account the dedicated manager actively makes investment decisions pertinent to the individual considering the client s needs and goals risk tolerance and asset size managed accounts are most often seen among high net worth investors | |
how a managed account works | a managed account may contain financial assets cash or titles to property the money or investment manager has the authority to buy and sell assets without the client s prior approval as long as they act according to the client s objectives because a managed account involves fiduciary duty the manager must act in the best interest of the client or potentially face civil or criminal penalties the investment manager will typically supply the client with regular reports on the account s performance and holdings money managers often have minimum dollar amounts on the accounts they will manage meaning a client must have a certain amount of funds to invest many minimums start at 250 000 though some managers will accept 100 000 and even 50 000 accounts 12managers will usually charge an annual fee for their services calculated as a percentage of the assets under management aum compensation fees range greatly but most average around 1 to 2 of aum many managers will provide discounts based on an account s asset size so that the larger the portfolio the smaller the percentage fee according to the internal revenue service these fees are no longer tax deductible as investment expenses 3a new innovation to managed accounts aimed at lay investors is the so called robo advisor robo advisors are digital platforms that provide automated algorithmically driven portfolio management with little to no human supervision these platforms are typically cheaper charging for example somewhere in the region of 0 25 of aum and may require as little as 5 to get started 4managed accounts are typically used by high net worth individuals as they often require a high minimum dollar amount of investment managed accounts vs mutual fundsmanaged accounts and mutual funds both represent actively managed portfolios or pools of money that invest over a variety of assets or asset classes technically a mutual fund is a type of managed account the fund company will hire a money manager to look after investments in the fund s portfolio this manager may alter the fund s holdings per the fund s objectives | |
when mutual funds began to be marketed in earnest in the 1950s they were touted as a way for the little guy that is small retail investors to experience and benefit from professional money management previously this was a service available only to high net worth individuals | customized managed accounts address the account holder s needs mutual funds invest according to the fund s objectives managed account trades can be timed to minimize tax liability mutual fund investors have no control when a fund realizes taxable capital gains managed account holders have maximum transparency and control over assets mutual fund holders don t own the fund s assets only a share of the fund s asset value some managed accounts require six figure minimum in funds mutual funds demand much lower initial investment amounts it may take days to invest or de vest managed account assets mutual fund shares are more liquid and can be bought or sold daily managed account managers tend to charge high annual fees that impact overall returns mutual funds expense ratio fees tend to be lower both managed accounts and mutual funds are overseen by professional managers managed accounts are personalized investment portfolios customized to the specific risks goals and needs of the account holder management of the mutual fund is on behalf of the many mutual fund holders and all about meeting the fund s investment and return objectives with a managed account the investor allocates funds and the manager purchases and places physical shares of securities into the account portfolio the account holder owns the securities and may direct the manager to trade them as desired in contrast mutual funds are classified by investors risk tolerance and the funds investment objectives not by individual preferences also investors purchasing shares of a mutual fund own a percentage of the value of the fund not the fund itself or the actual assets in the fund on the transactional side events might move more slowly in a managed account days may pass before the manager has the money fully invested also depending on the holdings selected managers may be able to liquidate securities at specific times only conversely shares of mutual funds may typically be purchased and redeemed as desired daily however some mutual funds may carry penalties if redeemed before holding for a specified period the professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account s owner in doing so it could result in little or no tax liabilities on a significant profit for the individual in contrast mutual fund shareholders have no control over when portfolio managers sell the underlying securities so they may face tax bites on capital gains special considerationsin july 2016 managed funds were in the news as several institutional investors simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios the investors wanted broader platforms customized strategies full control over their separate accounts daily valuation significantly lower fees and full transparency when it came to those fees as well as to the nature of the holdings themselves 5pensions investments claimed that the state managed alaska permanent fund corp in juneau redeemed us 2 billion in hedge funds to invest in a managed account so that investment decisions would be in house it was also reported that the 28 2 billion iowa public employees retirement system set up plans for moving 700 million in investments to managed accounts with seven firms in 2016 5 | |
what are managed futures | managed futures refers to an investment where a portfolio of futures contracts is actively managed by professionals managed futures are considered an alternative investment and are often used by funds and institutional investors to provide both portfolio and market diversification managed futures provide this portfolio diversification by offering exposure to asset classes to help mitigate portfolio risk in a way that is not possible in direct capital investments like stocks and bonds the performance of managed futures tends to be weakly or inversely correlated with traditional stock and bond markets making them ideal investments to round out a portfolio constructed according to modern portfolio theory understanding managed futuresmanaged futures have increasingly been positioned as an alternative to traditional hedge funds funds and other institutional investors often use hedge fund investments as a way of diversifying their traditional investment portfolios of large market cap stocks and highly rated bonds one of the reasons hedge funds were an ideal diversification play is that they are active in the futures market managed futures have developed in this space to offer a cleaner diversification play for these institutional investors the rise of managed futuresmanaged futures evolved out of the commodity futures trading commission act which helped to define the role of commodity trading advisors cta and commodity pool operators cpo 1 these professional money managers differed from stock market fund managers because they worked regularly with derivatives in a way most money managers did not the commodity futures and trading commission cftc and the national futures association nfa regulate ctas and cpos conducting audits and ensuring that they meet quarterly reporting requirements 2 the heavy regulation of the industry is another reason these investment products have gained favor with institutional investors over hedge funds | |
how managed futures trade | managed futures can have various weights in stocks and derivative investments a diversified managed futures account will generally have exposure to a number of markets such as commodities energy agriculture and currency most managed futures accounts will have a stated trading program that describes its market approach two common approaches are the market neutral strategy and the trend following strategy 3market neutral strategies look to profit from spreads and arbitrage created by mispricing investors who employ this liquid alternative strategy frequently look to mitigate market risk by taking matching long and short positions in a particular industry in an attempt to achieve profit from both increasing and decreasing prices trend following strategies look to profit by going long or short according to fundamentals and or technical market signals when an asset s price is trending lower trend traders may decide to enter into a short position on that asset conversely when an asset is trending upward trend traders may enter into a long position the goal is to capture gains by analyzing various indicators determining an asset s direction and then executing an appropriate trade investors looking into managed futures can request disclosure documents that will outline the trading strategy the annualized rate of return and other performance measures 4 | |
what is a management buyout mbo | the term management buyout mbo refers to a financial transaction where someone from corporate management or the team purchases the business from the owner s management members that execute mbos purchase everything associated with the business this type of buyout appeals to professional managers because of the greater potential rewards and control from being owners of the business rather than employees the mbo is a type of leveraged buyout lbo which is an acquisition funded primarily with borrowed capital investopedia theresa chiechi | |
how management buyouts mbos work | as noted above management buyouts occur when a corporate manager or team acquires the business they manage from the owner s the business is purchased from a private owner and or any shareholders in the company the acquisition includes everything associated with the business including the assets and liabilities mbos often take place because the management feels they are better equipped to help the company grow and succeed financially these transactions are key exit strategies for the financing required for an mbo is often quite substantial and is usually a combination of debt and equity that is derived from the buyers financiers and sometimes the seller since it uses a significant amount of borrowed capital it is considered an lbo as such it may also be called a leveraged management buyout while management reaps the rewards of ownership following an mbo they have to make the transition from being employees to owners which comes with significantly more responsibility and a greater potential for loss reasons for an mbomanagement buyouts are risky ventures that s because they may or may not work so why would a company s management consider doing one the following are some of the main reasons that corporate management may consider undertaking an mbo | |
how to approach a management buyout | a successful mbo requires a great deal of planning and preparation as such it should never be undertaken hastily the following are a few factors that should be considered in the process any type of financial transaction should be well researched as such management should craft a plan or proposal that s fully thought out and conceived some points to add include it s always a good idea for management to show the company s owner s that they ve done their homework this includes carrying out a thorough valuation analysis and to carry out full due diligence even though the managers currently work at the company there may be hidden problems like outstanding litigation that they don t know about a significant amount of money is required for an mbo because of the sheer size there are a few different sources that management can turn to in order to secure capital for the deal management should do their due diligence while considering an mbo this includes a full evaluation of the company and its financial and legal framework advantages and disadvantages of an mbomanagement buyouts are considered good investment opportunities by hedge funds and large financiers who usually encourage the company to go private so that it can streamline operations and improve profitability away from the public eye they are encouraged to go public at a much higher valuation down the road a private equity fund that supports an mbo will likely pay an attractive price for the asset provided there is a dedicated management team in place there are several drawbacks to the mbo structure as well while the management team can reap the rewards of ownership they have to make the transition from being employees to owners which requires a change in mindset from managerial to entrepreneurial not all managers may be successful in making this transition the seller may also not realize the best price for the asset sale in an mbo the managers have a potential conflict of interest if the existing management team is serious about bidding on the assets or operations being divested put simply they could downplay or deliberately sabotage the future prospects of the assets that are for sale to buy them at a relatively low price good investment opportunity for management and private equity hedge fundsprivate equity funds may pay a good price depending on the circumstancestransition for owners and employees may be toughcan result in a conflict of interestmanagement buyout mbo vs management buy in mbi the opposite of an mbo is a management buy in mbi while an mbo involves a company s internal management purchasing the operations an mbi takes place when an external management team acquires a company and replaces the existing management team mbis involve companies that are led by poor management teams or are undervalued an mbo s advantage over an mbi is that as the existing managers are acquiring the business they have a much better understanding of it and there is no learning curve involved which would be the case if it were being run by a new set of managers mbos are conducted by management teams that want to get the financial reward for the future development of the company more directly than they would do only as employees while private equity funds may participate in mbos their preference may be for mbis where the companies are run by managers they know rather than the incumbent management team example of an mboone prime example of a management buyout involves the computer and technology company dell in 2013 founder michael dell and a private equity firm silver lake partners paid shareholders 25 billion as part of a management buyout dell took the company private so he could exert more control over the direction of the company 1 the company went public again in december 2018 shares trade on the new york stock exchange nyse under the ticker symbol dell 2 | |
how do management buyouts work | management buyouts work when one or more members of a company s management team want to buy the operations from the owner s the goal is to take the company private to help it grow and succeed these buyouts are typically funded with one or more types of financing including debt and equity | |
what is an example of a management buyout | in 2013 michael dell partnered with a private equity firm to purchase the computer technology company he founded from shareholders he took dell private before the company went public again in 2018 12 | |
how do you finance a management buyout | there are a number of ways to finance a managed buyout debt financing involves going to banks and other lenders for loans but banks may not consider financing these types of deals because of the amount of risk involved private equity firms though are more receptive to loaning money to management some companies may require a share in the company in addition to being repaid buyers can also approach owners sellers for loans or use a combination of debt and equity to pay for the acquisition the bottom linemergers and acquisitions are a big part of the corporate world it isn t uncommon to hear about takeovers vertical mergers and management buyouts mbos involve corporate management putting in an offer to purchase part or all of the business they manage the goal is to take it private so it can continue to grow even though they take place in large corporations mbos are also fairly common in the small business world usually when the company exchanges hands from one generation to the next | |
what is management by objectives mbo | management by objectives mbo is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees according to the theory having a say in goal setting and action plans encourages participation and commitment among employees and aligns objectives across the organization katie kerpel investopediaunderstanding management by objectives mbo management by objectives also known as management by planning is the establishment of a management information system mis to compare actual performance and achievements with the defined objectives practitioners claim the major benefits of mbo are that it improves employee motivation and commitment and allows for better communication between management and employees however a cited weakness of mbo is that it unduly emphasizes the setting of goals to attain objectives rather than working on a systematic plan to do so critics of mbo such as w edwards deming argue that setting particular goals like production targets leads workers to meet those targets by any means necessary including shortcuts that result in poor quality 1in his book that coined the term peter drucker set forth several principles for mbo objectives are laid out with the help of employees and are meant to be challenging but achievable employees receive daily feedback and the focus is on rewards rather than punishment personal growth and development are emphasized rather than negative feedback for failing to reach objectives 2mbo is not a cure all but a tool to be utilized it gives organizations a process with many practitioners claiming that the success of mbo is dependent on the support from top management clearly outlined objectives and trained managers who can implement it steps of mbombo outlines five steps that organizations should use to put the management technique into practice advantages and disadvantages mbombo comes with many advantages and disadvantages |
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