S-Corporations, also called S-corps, are a cross between a traditional corporation and an LLC. S-Corporations are companies which, as opposed to C-Corporations, do not pay any federal income tax on their earnings, except in a few exceptional cases. Instead, the earnings (or losses) are passed to the shareholders and will appear on their individual income tax reports. The “S” comes from the subchapter of the Internal Revenue Code where the taxation laws are outlined. S-corps can actually be owned and operated by a sole proprietor after incorporating or starting an LLC in the state of residence and filing IRS form 2253 (link to instructions and form — found here). Continue reading...
A partnership is a business owned by two or more people, usually designated as an LLC. They play a role in the operation of the business, and are responsible for the legal and financial liabilities. In a partnership, as in a sole proprietorship, there is no legal shield against law suits and liabilities unless they have filed as an LLC or S-Corp. If the partnership were to be sued, without any kind of legal shield in place, the owners would be held completely accountable. Continue reading...
There are many different forms of ownership of a company in the United States. This subtopic describes some of them. Corporations can be privately held or publicly traded. There are also C-Corporations (C-corps), which are the typically large companies controlled by a board of directors, and S-Corporations (S-Corps), which are smaller and have some of the characteristics of LLCs. LLC is an abbreviation for Limited Liability Company, which is a pass-through entity for partnerships or sole proprietors which shields the private assets of the owners from the liabilities of the business. LLCs are almost entirely regulated by state law, and while they can issue stock, it depends on the state. Continue reading...
C-corps are generally the larger, more established companies in the country – most publicly-traded companies are C-corps. C-Corporations are companies which, as opposed to S-Corporations, are subject to federal income tax entirely separately from their owners. In addition, the earnings (or losses) are distributed among the shareholders (usually as dividends) and will appear on their individual income tax reports. This is the double-taxation for which C-corps are infamous. Continue reading...
A corporation is a business entity which has filed articles of incorporation. Unlike a Sole Proprietorship or a Partnership, a corporation is a legal entity that is separate from its owners. They are often referred to as C-corporations or C-corps, to distinguish them from S-corps, which are named after the subchapter which describes them in the law (though technically speaking, S-corps are corporations, too). Continue reading...
Income Tax Payable is an account on a company’s ledger where they reserve amounts that will be used to pay the tax liability in the current quarter or year. This account tends to be separate from payroll taxes and sales taxes. This account will typically be empty at the end of the fiscal year. Corporations must pay income taxes based on their gross income, and the funds to pay them are held in the Income Tax Payable account on their company ledger. Continue reading...
IRS Link to Publication — Found Here The Tax Guide for Small Businesses is a 50-page booklet designed to help small businesses navigate the forms and publications needed to file their taxes. There are many nuances to filing small business taxes, and many kinds of small businesses, so this form comes into use quite often. The Tax Guide for Small Businesses includes instructions and a list of documents and forms which will help small businesses file their taxes. Continue reading...
Core mutual funds represent the middle ground between Value and Growth, but are not the same as Blend funds. Core Mutual Funds are in between Growth and Value funds. In other words, companies in their portfolio have Price to Earnings ratios which are higher than those of Value companies but lower than those of Growth companies. This category is essentially based on the 9-box Morningstar categorization system, which separates equity funds into Small, Mid and Large Cap on the vertical axis and Value, Core, and Growth on the horizontal axis. Continue reading...
The S&P 500 (also known as the Standard & Poor's 500) is an index of the 500 largest and most important U.S. companies (selected by a special committee). The S&P 500 is a cap-weighted index, meaning the respective weights of companies in the index depends on market capitalization. For example, since Apple Inc. and Google are the biggest companies in the U.S., they affect movements in the S&P 500 more than a smaller company, like Visa. Continue reading...
B+ — S&P / Fitch B1 — Moody’s B+/B1 is within the range of ratings given to High Yield Bonds, also known as Junk bonds. B+/B1 is the 14th rating rating from the top rating of AAA/Aaa in the scales used by the Big Three credit ratings institutions, which are Fitch, Moody’s and S&P. They evaluate the fundamentals of companies, municipal entities, and their bond contracts to determine how much risk of default is present. The limit for the category of Investment Grade bonds is BBB-, and there are a few categories of BB above B. Continue reading...
Value mutual funds are those that invest in companies with strong fundamentals and steady earnings histories. A Value Mutual Fund’s portfolio will typically consist of stocks that are considered to be undervalued and expected to pay out dividends. The stocks held in such funds usually have P/E ratios in-line with or lower than the S&P 500 index, and such companies are usually older and well-established. Continue reading...
A+ — S&P / Fitch A1 — Moody’s In the spectrum of ratings given to bonds and companies, A+/A1 is a very good rating to get, even if it is the 5th rating from the top. The Big Three ratings institutions, which are Fitch, Moody’s, and S&P, give ratings for creditworthiness after inspecting the books of companies who issue bonds. There are credit ratings given for companies and credit ratings given to bond issues. Continue reading...
AA+ — S&P / Fitch Aa1 — Moody’s Major independent rating institutions such as Moody’s, Fitch, and Standard & Poor’s (S&P) can make or break a company or municipality’s ability to issue debt at a competitive yield. They rank companies and debt issues in terms of the risk of default. Ratings in the A range are considered Investment Grade, which is a rating mostly used by institutional investors. The interesting thing is that there are 7 kinds of A ratings, and they are different between the ratings institutions. We will not list them here, but charts that show the system are readily available online. Continue reading...
A- — S&P / Fitch A3 — Moody’s Rating institutions assign various levels of credit ratings to signify the chance of default; the A-/A3 rating is considered Investment Grade, but it is getting closer to the Junk Bond range. If a company or debt issue has a rating of A-/A3, it means that S&P and Fitch have given it an A- and Moody’s has given it an A3 rating. They have their own symbology for their ratings system but these are at the same level on both scales: these ratings are at the 6th or 7th degree from the top possible ratings, which is AAA/Aaa. Continue reading...
BB- — S&P / Fitch Ba3 — Moody’s The BB-/Ba3 rating is given to bonds and companies who have a moderate risk of default, and this rating appears around the middle of a scale with over 20 ratings. There are two symbols in this example which are the same rating: Fitch and S&P use BB-, and Moody’s uses Ba3. These are the Big Three of the Credit Ratings Agencies (CRAs) that the SEC has sanctioned to issue ratings which can be used for internal regulation within industry groups. Continue reading...
B- — S&P / Fitch B3 — Moody’s In the world of junk bonds, a B3/B- rating is about as low of a rating as most investors will venture to explore. Bonds are rated by independent ratings institutions known as the Big Three: Moody’s, Fitch, and S&P. Two companies, S&P and Fitch, use the same symbols, and the B- in this example belongs to them. Moody’s has its own system, and the B3 in this example is theirs. Continue reading...
BB+ — S&P / Fitch Ba1 — Moody’s This rating is the highest non-investment grade category that the ratings agencies will give to a bond. When rating bond issues based on their risk of default, investment grade bonds will range from AAA/Aaa to BBB-/Baa3, in the parlance of Fitch, Moody’s and S&P. Below this level, starting with the BB+/Ba1 rating, are High Yield Bonds, also known as Junk Bonds. If an investor chooses wisely, high yield bonds can be some of the best investments in his or her portfolio. The further down the ratings scale a bond appears, the higher the yield; but there is also a higher risk of default. The higher yield paid out on higher-risk bonds is known as the “risk premium,” which is a concept present throughout the investment world. Continue reading...
BB — S&P / Fitch Ba2 — Moody’s A bond rated BB/Ba2 is just below investment grade and is a somewhat speculative financial instrument. Fitch, Moody’s, and Standard & Poor’s (S&P) are the Big Three major credit ratings institutions. They each have proprietary formulas for assessing the financial strength and creditworthiness of companies, municipalities, insurers, and bond issues, The most common use of these ratings is for bonds, as investors seek to learn how likely it is that a bond will default on its payments. Continue reading...
The Price to Sales Ratio, also known as the PSR, is a valuation metric that looks at a stock’s market price versus its per share revenue. Alternatively, you can calculate it by dividing a company’s total market capitalization by its total revenue in the most recent fiscal year. The ratio indicates how much value (how much investors are willing to pay) is placed on each dollar of revenue generated by the company. Continue reading...
A — S&P / Fitch A2 — Moody’s Such ratings are given to bond issues and insurance companies, primarily, and this particular one is in the Upper Medium band of the Investment Grade ratings. Investment grade bonds are considered to have a very low possibility of default. The ratings go up to AAA/Aaa and all the way down to DDD/D, with Investment Grade bonds being in the range of AAA/Aaa to BBB-/Baa3. Continue reading...