trade school
Trade school tips to keep you a step ahead; make the most out of your trade school experience as a soon-to-be electrician, dental hygienist, paralegal, nurse, graphic designer, and others.
Using Net Present Value to Measure Return
If your company has not yet used the net present value (NPV) method of measuring the rate of return on a proposed capital investment project, chances are good that it will do so in the near future. During the past several years, NPV has become one of the most commonly used methods of capital investment evaluation.
By Daniel Joseph 4 years ago in Education
What Are Equity Costs?
Company managers generally view equity capital as cost free. Theoretically, you do not have to pay the capital back, so it’s free, particularly if your company does not intend to pay dividends that year. From a stockholder’s viewpoint, however, the outlook is different. Every dollar of earnings retained in the firm is a dollar denied to the stockholders. In a sense, it is a “hidden” cost for stockholders, almost akin to a new investment in the firm. The reason that stockholders maintain their investment is the promise of future dividends and/or capital appreciation (that is, an increase in share prices). Since both dividends and share price improvement depend on future earnings per share, it is the most important factor in determining your equity costs.
By Daniel Joseph 4 years ago in Education
Avoiding Common Pitfalls
No system for allocating capital resources is foolproof. You can, however, cut down on your chances of making a mistake by exploring the following alternatives when planning your capital investment proposal: ● Look for something better. Resist the tendency to assume that the proposals that bubble up from your subordinates are the best available. To strengthen your planning, solicit ideas from the widest possible range of departments. ● Be ready to branch out. Another common failing is the tendency to concentrate on the familiar when seeking fund allocations. Too often, innovative programs are equated with risky pro¬grams, and therefore disregarded. Always be ready to accept change if a sound business case can be made for it. ● Look to the longer term. In many firms, projects with a short payback period get the inside track. Management tends to think in terms of current-year results and overlooks projects that promise only long-term profit opportunities. However, the primary purpose of capital investment is to ensure the long-term profitability of your firm. Thus, while short-term profits are important, always leave room for projects that will pay off over the longer term—and be prepared to argue for them. ● Follow up on your capital program. Once a project has been approved, make an effort to ensure that it meets stated objectives. This will assist you in spotting problems early on and enhance the effectiveness of the program. Calculating Your True Capital Costs Before you can make an intelligent decision on a capital investment project, you will need to find out how much the project would cost. Then you must come up with a reasonable idea of the expected rate of return. Knowing these facts will tell you whether you’re in a strong position to request an allocation of your firm’s limited resources. Assessing the Cost of Debt Note that the interest rate on loans or bonds used in financing a project is affected by the nature of the firm’s other commitments. If a firm has committed itself to several high-risk projects, it will usually be required to pay a relatively high interest rate on a new undertaking, whether or not this venture is risky in itself. Other factors affecting a firm’s cost of debt include the company’s debt/equity position and the economic outlook for its industry. For these reasons, it is never safe to assume that the debt costs used to justify one project will be applicable to another. Each time you start to review a new project, take the time to find out your company’s current cost of debt from your firm’s finance department. Because interest expense is a deductible item, the cost of long-term debt should always be expressed as an after-tax figure. Apart from that, figuring your cost of debt is a fairly straightforward process. Merely use the rate of interest that your bank would charge for additional borrowing; apply your current tax rate to obtain the after-tax cost of your debt. Example: If your company is taxed at 34 percent and your interest rate on a new loan would be 12 percent, your after-tax debt cost comes to 7.9 percent (12 percent x 66 percent = 7.9 percent). What Are Equity Costs? Company managers generally view equity capital as cost free. Theoretically, you do not have to pay the capital back, so it’s free, particularly if your company does not intend to pay dividends that year. From a stockholder’s viewpoint, however, the outlook is different. Every dollar of earnings retained in the firm is a dollar denied to the stockholders. In a sense, it is a “hidden” cost for stockholders, almost akin to a new investment in the firm. The reason that stockholders maintain their investment is the promise of future dividends and/or capital appreciation (that is, an increase in share prices). Since both dividends and share price improvement depend on future earnings per share, it is the most important factor in determining your equity costs.
By Daniel Joseph 4 years ago in Education
Capital Investment Basics
Now that you have a handle on budget and cash flow, it’s time to move ahead with new projects. But first you must answer these questions: (1) Is there enough capital? (2) What projects will get priority? The best time—indeed, the only proper time—to make capital investment decisions is well before the actual funds are needed. Far too often, capital spending plans are made on a crisis basis, with the “squeaky wheel getting the most grease.” A slick presentation for someone’s pet project is no true basis for committing part of the firm’s financial resources, no matter how well intentioned that project may be. As a manager with decision-making authority, you need a long-term approach—a system that will enable you to analyze each proposal and then compare it with other possible projects. How to Prepare a Capital Investment Proposal Sooner or later, all serious capital spending proposals are submitted for inclusion in a capital budget. There they are classified, analyzed and evaluated before management makes a final decision on which proposals are most suited to the firm’s needs and objectives. Keep in mind, however, that a successful capital investment program must take your company’s long-range goals and objectives into account. Ideally, you and your staff should provide input in generating and developing capital spending proposals. You should always think in terms of contributing to overall business strategies when choosing among various spending proposals. This link with strategic planning can be accomplished in a variety of ways, depending on your company’s size and the complexity of its operations. Following is a brief rundown of the steps to take in preparing a capital spending proposal. They mirror many of the steps your firm uses in preparing a company-wide capital budget. ● Establish objectives: To set your department on the right growth plan, you must first decide where you want it to go. You must set long-term objectives and take into account top manage-ment’s expectations for the future. ● Develop strategies: Once broad objectives have been established, your department can start to consider various strategies that would help your company achieve its long-term objectives. ● Present proposals: Make each proposal as detailed as possible and include estimated costs and preliminary projections of possible savings. All these steps are essential because your plans will be competing with those of other units in the company. Upper management will evaluate and compare each unit’s spending plans. Those not fitting into strategic goals, or that do not have a good balance between financial stability and growth potential, will end up on the chopping block. Classifying Capital Spending Projects Most firms tend to treat all capital spending projects alike, an approach that can sometimes lead to serious errors in judgment. There are at least four broad categories of capital projects, each requiring a different planning approach and corporate strategy. 1. Mandated expenditures: These are expenditures required by law, such as OSHA safety regula-tions or EPA requirements. In addition, you can include spending projects to protect against product liability lawsuits or possible product recall. 2. Maintenance expenditures: Projects in this category include all those necessary to maintain production levels. Existing facilities or equipment often require repairs or replacement. Because your company’s output will be affected if the expenditures are not made, you should give capital spending for maintenance a high priority. 3. Cost-saving expenditures: This category includes all projects designed to make current operations more efficient or productive. Cost-saving proposals usually involve a choice between the existing method and proposed expenditure, so they should always be supplemented by cash-flow projections. 4. Growth expenditures: This is at once the most important and the most elusive category of capital spending. It includes all expenditures designed to stimulate your company’s growth, whether by introducing new products, entering new markets, purchasing equipment, adding facilities or making acquisitions. Although capital expenditures made for growth can exert a profound long-term influence on a firm, it is usually possible to defer them without undue penalties. For this reason, you should put growth investments at the low end of your capital budget priority scale. Seek funding for mandated and maintenance projects first because they are necessary to keep the firm functioning. Next come cost-saving projects, primarily because they can have an instant impact on the bottom line. Only after spending plans for the first three categories are final should you turn your attention to growth projects.
By Daniel Joseph 4 years ago in Education
Capital Investment Risks Analysis
If you were given a choice between two projects with the same return, you almost certainly would choose the project with less risk. The higher-risk project could be justified only by a higher return. This is why you must make some provision for assessing the risk in a proposed capital project. Without knowing the risk, you are not in a position to judge whether the project is suitable. At the outset, you should recognize that risk analysis is a difficult job. No method of risk analysis is entirely satisfactory, and each requires a good deal of expertise and judgment on the part of management. Moreover, many risks are difficult to reduce to numbers. For this reason, you should regard the risk analysis methods discussed below as tools. They are not substitutes for sound business judgment. They do, however, force you to view the various projects in the same light, which highlights risk and permits you to compare all of them. In this type of analysis, you attempt to isolate those factors that would have the most impact on cash flow if they were altered. You can identify any number of key variables, such as a sales downturn, the time it takes to put the project into place, increased costs, an economic slowdown and marketing difficulties. After each key variable has been identified, it is changed slightly and NPV is recalculated on the basis of the different cash-flow assumptions. Then the effect of the change is noted and ranked. Illustration: The ABC Company is considering the introduction of a new product that has a net present value of $40,000 over five years. It determines that the most critical variables in its NPV calculations are anticipated sales, pre-production costs and distribution costs. The company then assumes a 10 percent change in each of these variables and recalculates NPV in all three cases. Assuming the following NPV figures, its weighted-risk analysis might look something like this: Change in Variable Change in NPV Sales –10% –30% Distribution costs +10% –25% Pre-production costs +10% –15% In this case, a sales slowdown produces the greatest risk and trims the company’s NPV by 30 percent, or $12,000 on a 10 percent sales dip. Also, it had better keep a watchful eye on distribution costs if the company does go ahead with the project. A 10 percent rise there will cut the NPV by $10,000. Pre-production costs are important but exert less impact than the first two variables. ➤ Observation: Weighted-risk analysis can be very informative, particularly if you are astute enough to isolate the key variables. However, this method also has some limitations. First, there is no provision for measuring the probability of changes in the key factors. Also, changes in a combination of less influential factors could result in a substantial change in cash flows. Adjusting for Probabilities Turn back once again to the ABC Company’s illustration (pages 62–64). We have already demon¬strated that the project would be profitable at both 9 percent and 10 percent discount rates, but would produce only a marginal profit at 11 percent. Your company’s finance department has likely developed estimates of the probability for each cost of capital, based on the outlook for your industry and economic projections. Obtain these estimates from the department. A company estimates the probability of each discount rate for each year that the project will be in force. Then, NPV for each year is adjusted for the probability. Example: Refer to the table below. In Year 1, ABC estimates only a 10 percent chance of a 9 percent discount rate. Therefore, the 9 percent NPV of $13,755 becomes $1,375 ($13,755 x .10). Similarly, the 80 percent probability of a 10 percent discount rate translates into $13,635 x .80, or $10,908. Add to that the $1,351 from the 11 percent column ($13,515 x .10), and the adjusted NPV for Year 1 becomes $13,634. After adjusting for all five years, NPV is a positive $1,759 for the project—an indication that the ABC Company should proceed. Year Discount Rate of 9% Discount Rate of 10% Discount Rate of 11% Adjusted Present Value 1 10% 80% 10% $13,634 2 20 70 10 12,417 3 30 60 10 11,329 4 20 60 20 11,955 5 20 60 20 12,424 Total Cash Flow $61,759 Capital Cost 60,000 Adjusted NPV $ 1,759 The attempt to measure the probability of different scenarios adds a new dimension to risk analysis and can be quite helpful. But remember that it is difficult to assign probability levels four or five years into the future. Alternate Scenarios Measure Risk With this method, you develop three separate NPV or IRR studies for each project. You assume that (1) everything will go exactly as planned, (2) nothing will go right, and (3) things will go more or less as expected, with some bugs. Then you compare the varying degree of risk in each project. For instance, you find two projects with the same midpoint NPV, but one with much more risk if nothing goes right. In that case, you would probably choose the project with the lower risk. It is relatively easy to compare different projects with this method. However, it is also unre¬alistic in that there are few projects launched where everything goes right, and just as few where everything goes wrong. Moreover, there is no adjustment for the various probabilities.
By Daniel Joseph 4 years ago in Education
The Income Statement
The income statement (also called the earnings report or profit-and-loss statement) reflects the results of operation over a period of time, in contrast to the balance sheet’s snapshot view of the company’s financial condition at a given instant. Again, every business must prepare an annual income statement for tax, legal and other purposes; nevertheless, semiannual, quarterly or even monthly statements can be extremely useful. The items included in the simplified income statement on page 6 will often be needed to create the financial ratios used in your analysis and covered in the next section. Briefly, here is a description of the items contained in a company’s income statement: Sample Income Statement Gross sales or revenues $ 605,000 Returns, discounts and allowances 30,000 Net sales or revenues 575,000 Cost of sales or goods sold 470,000 Gross margin or operating profit $ 105,000 Selling and administrative costs 60,000 Depreciation 5,000 Net operating profit $ 40,000 Interest income or nonoperating income 10,000 Interest expense or nonoperating expense 3,000 Net profit before taxes $ 47,000 Provision for federal income taxes 10,000 Net profit after taxes $ 37,000 Gross sales or revenues: The actual total dollars billed for goods sold or services provided, before returns, discounts and allowances granted. Sales income and accounts receivable determine this first line item. Net sales or revenues: Gross sales minus returns, discounts and allowances. Cost of goods sold: The amounts paid for the purchased materials, components and finished products; direct payroll, operating overhead; and other costs of acquiring or producing the prod¬ucts or services and making them available for sale. This line item often appears as less cost of goods sold. Gross profit: The difference between net sales or revenues and the cost of the products or services sold. This represents the amount of money left to sell the product and perform the day-to-day operations of the business. Selling and administrative costs: Selling costs include salespersons’ salaries and commissions, travel and entertainment expenses, sales promotion and advertising costs. Administrative costs include office salaries and expenses, executive salaries and other current support expenses that can’t be allocated to production or sales departments. Depreciation: The costs of plant assets (or fixed assets: property, plant and equipment) are written off as expenses over their anticipated useful life. Not all fixed assets are depreciated, however. For instance, the value of land tends to appreciate in value because it does not typically wear out. There are various depreciation techniques an accountant can use. The simplest and most commonly used method in U.S. businesses is called the straight-line method of depreciation, which allows you to depreciate the same amount of expense each year of the estimated useful life of the asset. For example, an asset with a value of $10,000 and a useful life of 10 years will have an annual $1,000 depreciation expense each year. Net operating profit: Gross profit, less selling costs and administrative overhead. This line item represents the profit generated by the normal operations of the business. Nonoperating income: Interest and dividends received on investments, gains on the disposi¬tion of capital assets, etc. Nonoperating expenses: Interest paid on long-term debts, losses on sales of capital assets, etc. Net profit before taxes: Net operating profit, plus any nonoperating income and minus any nonoperating expenses. Provision for federal income taxes: The estimated amount to be paid on operating earnings for the period, not the amount of taxes paid during the period. Net profit (or income) after taxes: The final “bottom line” profit cleared by the business from all sources during the period covered by the statement. Using this vital figure, stockholders can evaluate management, investors can decide on whether to purchase the company’s stock, and creditors can measure the riskiness of a loan. The Statement of Cash Flows The statement of cash flows, which shows the movement of cash through a business, presents the cash receipts and cash payments of a company over a period of time. It complements the income statement by providing information on a company’s liquidity and financial flexibility. It also ex¬plains the change of cash and cash equivalents during a period. (Cash equivalents are short-term, highly liquid investments that are readily convertible to cash amounts, such as short-term Treasury bills, commercial paper and money market funds.) In similar fashion to the balance sheet and the income statement, the statement of cash flows must be prepared annually by every business but may also be done semiannually or quarterly. Note: Effective for annual financial statements for fiscal years ending after July 15, 1988, the statement of cash flows supersedes the statement of changes in financial position, which the Fi¬nancial Accounting and Standards Board (FASB) formerly required. Not-for-profits, however, are not required to make the switch-over. By using the statement of cash flows in conjunction with information provided by the balance sheet and the income statement, company owners, creditors and others who use financial state¬ments can assess a company’s ability to generate future net cash inflows, meet debt obligations and pay dividends. The statement should also help in assessing a company’s need for future external financing, as well as the effects of both cash and noncash investing and financing activities on a company’s financial position. The statement of cash flows is classified by operating, investing and financing activities. (See sample statement on page 8.) Briefly, these are the items contained in a company’s statement of cash flows: Operating Activities: Cash received from: ● Sale of goods or services. ● Collections or sales of receivables that arise from the sales of goods and ser-vices. ● Interest on loans and bonds. ● Dividends on equity securities. ● Insurance and lawsuit settlements. ● Refunds from suppliers. Cash paid to: ● Acquisition of materials for inventory or manufacturing products, or for goods for resale, including payments on trade accounts and notes payable to suppliers. ● Creditors for interest. ● Employees for compensation. ● Governmental agencies for taxes, duties, fees, fines or penalties. ● Customers for refunds. ● Lawsuit settlements. ● Charities for contributions. Investing Activities: Cash received from: ● Sales of property, plant, equipment and other productive assets. ● Sales of a business unit such as a branch, division or subsidiary. ● Collections of principal on debt instru¬ments of other companies. ● Sale of loans. Cash paid to: ● Acquire property, plant, equipment and other productive assets. ● Acquire another business. ● Make loans to and/or purchase loans from another company. ● Acquire debt or equity investments in other companies. Financing Activities: Cash received from: ● Issuing equity instruments, such as stock in the company. ● Issuing bonds, mortgages, notes and other forms of short-term or long-term borrowing. Cash paid to: ● Owners of the company in the form of dividends or other distributions. ● Repayment of amounts borrowed on short-term and long-term debt. Cash flows from operating activities Cash received from customers $110,000 Cash paid to suppliers and employees ( 90,000) Interest received 8,000 Interest paid ( 6,000) Income taxes paid ( 9,000) Net cash provided by operating activities $13,000 Cash flows from investing activities Proceeds from sale of plant $70,000 Purchase of equipment ( 10,000) Net cash provided by investing activities $60,000 Cash flows from financing activities Principal payments on notes ($40,000) Dividends paid ( 15,000) Net cash used in financing activities ($55,000) Net increase in cash and equivalents 18,000 Cash and equivalents at beginning of year 12,000 Cash and equivalents at end of year $30,000 Reconciliation of net profit to net cash provided by operating activities: Net profit after taxes $37,000 Depreciation 2,000 Gain on sale of plant (11,000) Increase in trade accounts receivable ( 7,000) Increase in inventory (10,000) Decrease in accounts and notes payable 5,000 Increase in interest and taxes payable ( 3,000) Net cash provided by operating activities $13,000 The most straightforward way to present operating activities in a statement of cash flows is the direct method, which reports major classes of operating cash receipts and payments. Under this method, a separate schedule is presented with the statement of cash flows that reconciles net profit and net cash flow from operating activities. In effect, this reconciliation is a conversion of net profit from the accrual to the cash basis of accounting. ➤ Observation: You’ll find the balance sheet, the income statement and the statement of cash flows in a company’s annual report. In most annual reports these financial statements are pre¬sented on a comparative basis: that is, the current year along with one or more prior years. Use the figures in these statements to analyze your own company as well as your competition, to forecast the financial outcome for your entire business or department project, and to make a variety of other essential business decisions. In short, these reports are three of the businessperson’s most important tools.
By Daniel Joseph 4 years ago in Education
Fiverr Italian Grammar Test Question Answers
Nell'ambito degli sforzi di Fiverr per migliorare la qualità complessiva del venditore, Fiverr offre ai venditori l'opportunità di fare test di abilità e testare le proprie abilità. In qualità di venditore, questi test di abilità aumentano la fiducia dell'acquirente
By Mathew Vargheese4 years ago in Education
Boris Johnson is bruised but survives the fatal No Confidence Motion!
The conservative party leader faced a significant no-confidence motion on Monday 6th June 2022. The results were not satisfactory, but he was able to hold his position by a marginal 41% votes of MP in his favour. However, this is a bruised win for the PM, as this will enhance his pre-established negative outlook. Although the PM, Boris Johnson, didn’t seem to be much affected by this shift as he stated post motion in the press that the results were ‘extremely good, satisfactory and conclusive ‘.
By ValuedPost4 years ago in Education
I want to learn to work online, how to earn money by learning to work online?
We want to learn to work online for the purpose of earning money online. Because, nowadays, making money online has become very popular. However, earning money is not an easy task. To make money online, you first need to have some basic ideas. This article or section needs sources or references that appear incredible, third-party publications. I want to learn to work online, how to earn money by learning to work online?
By Sashon khan4 years ago in Education
What Is The Right Way To Calculate The Charges With Cash App Fee Calculator?
Are you one of those who are seeking the best possible solutions to deal with the problems you face while using the Cash App Fee Calculator to calculate the charges and fees that the Cash App charges? To understand everything about the same, you will need to have a word with the Cash App engineers.
By Addy James4 years ago in Education
WHEN DO I NEED A STEEL BEAM?
Steels beams are widely used in commercial construction projects due to their versatility, strength and affordability. Although the material has many positive benefits for use in all construction, steel usage in residential properties is still a relatively new concept.
By Steels Direct4 years ago in Education
What is NFT? NFT Crypto Explained. NFT Explained. NFT Crypto Art
What is NFT? NFTs turn your digital assets into one of a kind by creating a unique digital signature that defines the ownership of your assets and that can be bought and sold for real money cryptocurrency or any other asset like a non-fungible token aka nft non-fungible tokens means that they are not interchangeable and each of them represents unique assets owned by a specific person.
By Hasham Ullah5 years ago in Education
